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INDUSTRIAL  COMBINATIONS  AND  TRUSTS 


THE  MACMILLAN  COMPANY 

NEW  YORK  •  BOSTON  •  CHICACO  •  DALLAS 
ATLANTA  •  SAN  FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON    •    BOMBAY    •   CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


INDUSTRIAL 
COMBINATIONS  AND  TRUSTS 


EDITED   BY 

WILLIAM  S.  STEVENS,  Ph.  D. 

Columbia    University 


University  of  Redlands  Library 


THE  MACMILLAN   COMPANY 
1914 

All  rights  reserved 


111* 


Copyright,  1913, 

Bv  THE  MACMILLAN  COMPANY 

Set  up  and  electrotyped.     Published  January,  1913. 

Reprinted  October,  1913;  July,  10  r.1. 


<F       ' 


TO  PROFESSORS  PATTEN,  McCREA, 
MEADE  AND  JOHNSON  OF  THE 
WHARTON  SCHOOL,  UNIVERSITY 
OF  PENNSYLVANIA,  THE  EDITOR 
DEDICATES  THIS  VOLUME  OF 
READINGS,  IN  GRATEFUL  REMEM- 
BRANCE OF  SYMPATHY,  COUN- 
SEL AND  ENCOURAGEMENT. 


7° 


2m.  i7 


IMPORTANT 

The  editor  desires  to  call  attention  to  the  following  points: — 
i.  The  editor  is  alone  responsible  for  the  typographical  work  in  the 
volume.  So  far  as  possible  it  was  attempted  to  reproduce  the  documents 
exactly  as  they  were  in  the  original.  The  editor  believes  that  all  the  errors 
in  spelling  and  construction  have  been  duly  noted.  To  have  done  the 
same  with  the  very  numerous  errors  in  punctuation,  use  of  parentheses, 
etc.  etc.,  would  have  unnecessarily  cumbered  the  pages.  Such  errors 
as  are  discovered  therefore  in  this  respect  will  probably  be  found  to  be 
errors  in  the  originals. 

2.  Some  of  the  court  decisions  were  necessarily  taken  from  advance 
copies  as  at  the  time  the  volume  was  made  up  they  had  not  been  pub- 
lished in  the  reports. 

3.  The  paging  in  the  Stanley  and  Interstate  Commerce  Committee 
Investigations  differs  somewhat  in  the  first  copies  issued  and  the  last. 

4.  The  title  of  the  Interstate  Commerce  Investigation  reads  in  original, 
sometimes  "Hearing"  and  at  others  "Hearings." 

5.  Lines  and  fictitious  initials  have  been  used  instead  of  names  in 
many  places  in  Chapter  XII. 

6.  Examination  of  the  document  beginning  on  page  118  will  show  that 
it  resembles  both  a  pooling  agreement  and  a  factor's  agreement.  As  a 
single  contract  the  party  of  the  first  part  is  constituted  a  factor  of  the 
Table  and  Stair  Oil  Cloth  Association.  Several  of  such  contracts,  how- 
ever, were  the  basis  of  the  pool.  The  document  should  be  read  both  as  a 
pooling  and  as  a  factor's  agreement. 


PREFACE 

During  the  last  two  or  three  years  while  the  editor  of  this  volume 
was  giving  careful  study  to  the  subject  of  Trusts,  he  became  more 
and  more  forcibly  impressed  by  the  need  of  a  presentation  of  the 
subject  that  should  be  strictly  impartial,  that  should  advocate  no 
theories,  but  yet  should  present  the  problems  that  arise  in  relation  to 
Trusts  comprehensively,  and  as  they  are.  The  realization  of  this 
need  was  increased  by  the  fact  that  a  large  number  of  writers  have 
shown  the  disposition  to  confuse  the  problems  to  which  the  Trust 
gives  rise,  with  those  that  develop  in  connection  with  corporations 
and  large  scale  production. 

The  publication  of  the  Steel  and  Interstate  Commerce  Com- 
mittee Investigations  bridged  many  of  the  chasms  which,  in  the 
opinion  of  the  editor  lay  in  the  way  of  a  satisfactory  treatment  of 
the  subject  from  source  material.  Thereupon  it  was  decided  to 
attempt  the  present  volume,  a  book  that  should  not  give  the  reader 
a  second  hand  knowledge  of  the  Trusts,  but  which  should  place  be- 
fore him  the  original  documents  themselves:  pooling,  Trust,  factors 
and  international  agreements;  court  decisions  and  laws  against 
Trusts;  Trust  methods  of  fixing  prices,  eliminating  competition  and 
restraining  trade;  the  dissolution  plans  of  dissolved  Trusts;  lease  and 
license  agreements  of  representative  patent  monopolies;  and  the 
views  of  eminent  business  and  professional  men  as  to  the  proper 
methods  of  handling  this  gigantic  problem. 

Throughout  the  preparation  of  the  volume  two  purposes  were 
held  steadily  in  mind.  The  first  was  to  design  a  volume  that  should 
place  within  the  reach  of  the  students  in  courses  in  Trusts  in  our 
colleges  and  universities,  material  of  which  much  is,  as  the  editor 
knows  from  personal  experience,  only  too  often  difficult  of  access 
or  else  altogether  unavailable.  The  second  purpose  of  the  editor 
was  the  collection  of  such  a  set  of  materials  as  would  afford  the 
ordinary  reader  who  chances  to  be  interested  in  Trusts,  a  fair 
knowledge  at  first  hand  of  the  historical  development  of  the  Trust 
movement  in  the  United  States,  and  a  thorough  comprehension  of 
those  problems  in  regard  to  them  that  the  country  is  facing  to-day. 


viii  Preface 

The  arrangement  of  the  book  has  been  devised  by  the  editor 
with  the  idea,  that,  should  it  satisfactorily  serve  the  ends  for  which 
it  is  designed,  it  may  be  possible  to  add  new  readings  from  the 
mass  of  materia]  that  is  steadily  accumulating  upon  the  subject. 

The  editor  wishes  to  make  his  acknowledgments  to  Dr.  McCrea 
of  the  Wharton  School,  University  of  Pennsylvania,  for  valuable 
suggestions  and  criticisms  in  regard  to  head  notes  and  to  Mr.  Lewis 
Abbott,  a  graduate  student  in  the  Wharton  School,  who  in  con- 
junction with  the  editor  read  the  manuscript  proof.  Grateful 
acknowledgments  are  also  due  to  Mr.  O.  J.  Field  of  the  Depart- 
ment of  Justice  for  his  prompt  courtesy  and  unfailing  kindness 
in  supplying  required  documents  and  replying  to  numerous  re- 
quests for  information.  The  editor  also  desires  to  mention  his 
obligations  to  Senator  Clapp  and  Representative  Stanley,  each  of 
whom  furnished  the  editor  with  several  copies  of  the  investigations 
of  which  they  were,  respectively,  in  charge. 

WILLIAM  S.  STEVENS. 
Unity,  Maine, 
September,  191 2. 


CONTENTS 

CHAPTER  I 

Specimens  of  Early  Pooling 

page 
Note i 

EXHIBIT 

i.  Articles  of  Association  of  the  Manufacturers  of  Gunpowder 2 

2.  Proceedings  of  the  Kentucky  Distillers  at  their  Meeting  in  Louisville      4 

3.  Agreement  of  Envelope  Manufacturers 10 

CHAPTER  II 

Representative  Trusts 

Note 13 

exhibit 

1.  Standard  Oil  Trust  Agreement  of  1879 14 

2.  Standard  Oil  Trust  Agreement  and  Supplemental  Trust  Agreement 

of  1882 17 

3.  Deed,  The  Sugar  Refineries  Co 27 

4.  Distillers'  and  Cattle  Feeders'  Trust 36 

CHAPTER  III 

Legislative  Opposition  to  the  Trust 

Note 43 

exhibit 

1.  The  Sherman  Anti-trust  Law 43 

2.  Kansas 45 

3.  Kentucky 40 

4.  Michigan 48 

5.  North  Carolina 50 

CHAPTER  IV 

Judicial  Attack  on  the  Trust 
Note 52' 

EXHIBIT 

1.  State  ex  rel.  Attorney  v.  Standard  Oil  Company 52 

2.  States  v.  Nebraska  Distilling  Company 57 

3.  People  v.  North  River  Sugar  Refining  Company 61 

is 


CeiNTKNTS 


CHAPTER  V 

The  Holding  Company 

PAGE 

Note 67 

Group  1.  Power  of  One  Corporation  to  Hold  Stock  in  Another 67 

EXHIBIT 

1.  De  La  Vergne  Refrigerating  Machine  Company  v.  German  Savings 

Institution 67 

Group  2.  Difference  between  the  Trust  and  the  Holding  Company   .       73 

EXHIBIT 

i.  Standard  Oil  changes  from  a  Trust  to  a  Holding  Company 73 

Group  3.  Holding  Company  Laws 78 

EXHIBIT 

1 .  State  of  New  Jersey 78 

2.  State  of  New  York 79 

3.  State  of  Delaware 79 

4.  State  of  Maine 79 


CHAPTER  VI 

Formation  of  the  United  States  Steel  Corporation 
Note 81 

EXHIBIT 

i.  Testimony  of  John  W.  Gates 81 

2.  Testimony  of  Elbert  H.  Gary 86 

3.  Testimony  of  Chas.  M.  Schwab 95 

4.  Testimony  of  Andrew  Carnegie 99 


CHAPTER  VII 

Factors'  Agreements 

Note 118 

EXHIBIT 

i.  Table  and  Stair  Oil  Cloth  Association 118 

2.  American  Tobacco  Company 127 

3.  National  Wall  Paper  Company 130 

4.  American  Sugar  Refining  Company 132 

5.  United  States  Rubber  Company 133 

6.  Standard  Sanitary  Manufacturing  Company 138 

7.  Excerpts  showing  the  Operation  of  the  Factor's  Agreement  of  the 

American  Tobacco  Company 145 

8.  Dr.  Miles'  Medical  Company  v.  John  D.  Park  &  Sons  Co 149 


Contents  xi 

CHAPTER  VIII 

International  Agreements 

PAGE 

Note X6o 

EXHIBIT 

i.  Agreement  of  the  American  Tobacco  Interests  and  the  Imperial  To- 
bacco Company,  Limited,  relative  to  the  Limitation  of  the  Sphere 
of  Operation  of  each,  and  the  Transfer  of  Ogden's  Limited 161 

2.  Agreement  made  between  the  American  Tobacco  Company  Interests 

and  the  Imperial  Tobacco  Company,  Limited,  relative  to  the 
control  of  business  by  the  British  American  Tobacco  Co.,  Limited.  168 

3.  International  Agreement  in  the  Explosives  Trade 176 

4.  Aluminum  Company  of  America 183 

CHAPTER  LX 

Pools  and  Associations 
Note 185 

EXHIBIT 

i.  Steel  Rail  Pool 185 

2.  Constitution  and  By-laws  of  the  Michigan  Retail  Lumber  Dealers 

Association 188 

3.  Fundamental  Agreement  of  the  Explosive  Trade 195 

4.  Addyston  Pipe  Pools 205 

5.  Extracts    from    the    Constitution   and    By-Laws   of    the   Coal 

Dealers'  Association  of  California 209 

6.  Structural  Steel  Association  of  the  United  States   211 

7.  The  Steel  Plate  Association 219 

8.  By-Laws  of  the  Eastern  States  Retail  Lumber  Dealers  Association  225 

9.  Naval  Stores  Agreement 229 

10.  Bath  Tub  Combination 237 

1 1 .  Bath  Tub  Combination 240 

12.  Memorandum  of  Agreement   (called   the   Eastward  Agreement) 

regarding  the  Trade  between  the  Atlantic  Ports  of  the  U.  S.  A. 
and  the  Eastern  Asiatic  Ports 244 

CHAPTER  X 

The  Patent  Monopoly 
Note 248 

EXHIBIT 

1.  Lease  and   License   Agreement  of    the  United   Shoe  Machinery 

Company  for  certain  Machines 249 

2.  Exchange    License    Agreement   of   the    Motion    Picture    Patents 

Company 259 

3.  Crown  Cork  and  Seal  Company 266 

4.  Sydney  Henry  v.  A.  B.  Dick  Company 269 


xii  Contents 


chapter  XI 

The  Absorption  of  the  Tennessee  Coal,  Iron  and  Railroad  Company 

page 
Note 285 

EXHIBIT 

i.  Narrative  of  Judge  Elbert  H.  Gary 285 


CHAPTER  XII 

Methods  of  Competition  and  Restraint  of  Trade 

Note 312 

Group  1 312 

exhibit 

1. Company 312 

2. Company  315 

3.  General  Electric  Company 316 

4. Company   318 

Group  2 318 

exhibit 

1. Company 318 

2. Company 319 

3.  E.  I.  du  Pont  de  Nemours  Powder  Company 326 

4.  American  Tobacco  Company 327 

5.  International  Harvester  Company   329 

Group  3 329 

exhibit 

1. Company 329 

2. Company 331 

Group  4   333 

exhibit 

1.  Explosives  Trade  333 

2.  Standard  Oil  Company 335 

3- Company 339 

Group  5 34i 

exhibit 

1.  Credit  Agencies 341 

2.  Report  Committee  on  Trade  Relations, Dealers' 

Association 343 

3.  Agreement  of  the Association 346 

4.  Report  of  Trade  Relation  Committee 348 

Group  6 349 

exhibit 

1.  Customer's  Lists  of  the 's  Assoc 349 

2.  Circulation  of  Information 351 


Contents 


xm 


PAGE 

3.  "Yes"  and  "No"  Lists  of  the Dealers'  Association  352 

4.  Circular  issued  by Dealers' Association  to  the  Trad 

5.  Official  Report  of  the Dealers'  Association  — 

New  York,  N.  Y 353 

6. Association 

GrouP  7 :   355 

EXHIBIT 

i.  Trade   ,„ 

2.  Explosives  Trade 31-5 

3. Company ■,?■, 

Group  8 365 

EXHIBIT 

1 . Company 365 

2. Company 367 

Group  9 \  368 

EXHIBIT 

i . Company 368 

2. Company 37! 

3.  Consolidation  Coal  Company 373 

4.  American  Sugar  Refining  Company 377 

5.  Gary  Dinners 386 

6. of  America 404 


CHAPTER  XIII 

Recent  Trust  Decisions 

Note 407 

exhibit 

1.  Decree  against  the  Standard  Oil  Company 407 

2.  Decree  against  the  American  Tobacco  Company 416 

3.  Decree  against  the  Powder  Combination 424 

4.  Decree  against  the  Standard  Sanitary  Manufacturing  Co 429 

5.  Decree  of  Injunction  against  the  Southern  Wholesale  Grocers'  Asso- 

ciation   433 

6.  Decree  against  the  General  Electric  Company 436 


CHAPTER  XIV 

Methods  of  Dissolution 
Note 440 

EXHIBIT 

1.  The  Dissolution  of  the  American  Tobacco  Company 440 

2.  The  Dissolution  of  the  Standard  Oil  Company 462 

3-  Dissolution  of  the  Powder  Trust 463 


xiv  Contents 

CHAPTER  XV 

Efficacy  of  Dissolution 

page 
Note 472 

EXHIBIT 

i.  Results  of  the  Tobacco  Dissolution  plan  as  claimed  by  the  Peti- 
tioners    472 

2.  Claim  of  the  American  Tobacco  Company  with  respect   to  the 

Division  of  the  Tobacco  Business  of  the  United  States  by  Volume 
and  Value 474 

3.  Distribution  of  Factories  and  Principal  Brands  as  claimed  by  the 

American  Tobacco  Company 476 

4.  Distribution  of  Purchases  of  Different  Types  of  Tobacco  with  Esti- 

mate of  Average  Aggregate  as  claimed  by  the  American  Tobacco 
Company 478 

5.  Claim  of  the  Attorney  General 479 

6.  Objections  of  the  National  Cigar  Leaf  Tobacco  Association,  etc., 

to  the  plan  of  Disintegration,  filed  by  the  American  Tobacco 
Company  and  Others 485 

7.  Argument  of  Felix  H.  Levy 498 

8.  Claim  of  the  Independents  in  Regard  to  the  Distribution  of  To- 

bacco and  Brands  among  the  Tobacco  Companies  after  Dissolu- 
tion      507 

9.  Respondents  Amended  Return  to  the  Alternative  Writ  of  Manda- 

mus    516 

CHAPTER  XVI 

Proposed  Methods  of  Dealing  with  the  Trust  Problem 
Note 525 

EXHIBIT 

i.  President  William  Howard  Taft 525 

2.  Senator  Robert  W.  LaFollette 530 

3.  Senator  John  Sharp  Williams 537 

4.  Senator  Albert  B.  Cummins 540 

5.  Judge  Elbert  H.  Gary 548 

6.  Andrew  Carnegie 557 

7.  James  A.  Farrell 559 

8.  George  W.  Perkins 563 

o.  Louis  D.  Brandeis 574 


INDUSTRIAL    COMBINATIONS 
AND  TRUSTS 

CHAPTER  I 

SPECIMENS  OF   EARLY   POOLING 

NOTE 

The  industrial  combination  and  trust  movement  as  a  feature  of 
our  national  life  may  be  said  to  date  from  the  pools  in  the  cordage 
industry  about  i860.  These  combinations  were  shortly  succeeded 
in  the  middle  of  the  sixties  by  the  organization  of  the  Michigan 
Salt  Association,  and  the  first  anthracite  coal  combination  appears 
to  have  been  formed  in  187 1.  The  pools  of  the  anthracite  coal  roads 
continued  a  more  or  less  intermittent  and  spasmodic  existence  down 
to  the  passage  of  the  Interstate  Commerce  Act  of  1887.  Both  the 
seventies  and  eighties  were  characterized  by  numerous  combina- 
tions of  the  same  type.  Among  these  may  be  mentioned  the  West- 
ern Export  Association,  the  United  Refining  Company,  Gunpowder 
Manufacturers'  Association,  Kentucky  Distilleries'  Association, 
Wall  Paper  Association,  Sand  Paper  Association,  Upholsterers' 
Felt  Association,  Standard  Envelope  Company  and  others. 

Space  permits  the  reproduction  of  only  three  documents  showing 
the  form  of  organization  and  methods  of  these  early  combinations. 
So  brief  an  examination  may  be  justified  first,  by  the  fact  that  these 
pools  are  now  chiefly  of  historic  interest,  and  second  that  their  or- 
ganization and  methods  of  operation  have  in  nearly  every  case 
been  substantially  reproduced  in  more  recent  combinations  whose 
agreements  will  be  shown  in  other  chapters. 

The  first  exhibit  in  the  following  pages  is  the  pooling  agreement 
of  the  Gunpowder  Manufacturers,  which  was  adopted  April  23, 
1872.  In  essence  it  is  a  simple  agreement  for  the  maintenance  of 
prices.  In  the  second  agreement,  that  of  the  Kentucky  Distillers, 
we  have  an  example  of  a  pool  formed  primarily  to  divide  output 


2  Industrial  Combinations  and  Trusts 

and  limit  production.  In  the  third  member  of  this  group,  the 
Standard  Envelope  Company,  we  have  probably  the  most  inter- 
esting combination  of  the  three.  The  Standard  Envelope  Company 
was  a  Massachusetts  corporation  with  a  capital  of  $5,100,  incor- 
porated by  certain  envelope  manufacturers.  It  was  a  convenient 
method  of  harmonizing  the  interests  of  the  different  members,  and 
was  used  as  a  medium  for  the  pooling  of  profits  and  expenses.  An- 
other and  supplementary  agreement  provided  an  arrangement 
for  equalizing  and  keeping  prices  at  a  fixed  rate,  and  also  for  equal- 
izing losses  and  expenses. — Ed. 

Exhibit  i 
articles  of  association  of  the  manufacturers  of  gun- 


powder 


We,  the  undersigned,  Manufacturers  of  Gunpowder,  for  the  pur- 
pose of  ensuring  an  equitable  adjustment  of  prices  and  terms  for 
sales  of  powder  throughout  the  United  States,  hereby  agree  to  the 
subjoined  Articles  of  Association,  to  which  we  severally  pledge  for 
ourselves,  and  all  under  our  control,  rigid  and  honorable  adherence. 

1st. — This  Association  shall  be  called  "The  Gunpowder  Trade 
Association  of  the  United  States,"  and  comprises  all  manu- 
facturers of  Gunpowder  in  the  United  States,  who  now  or  hereafter 
may  be  admitted  thereto;  the  present  organization  being  composed 
of  the  following  manufacturers,  entitled  to  representation  and  vote 
at  all  meetings  of  the  Association,  as  follows: 

E.  I.  Dupont  de  Nemours  &  Co Ten  Votes. 

Hazard  Powder  Company Ten  Votes. 

Laflin  &  Rand  Powder  Company.  .  .  .Ten  Votes. 

Oriental  Powder  Mills Six  Votes. 

Austin  Powder  Company Four  Votes. 

American  Powder  Company Four  Votes. 

Miami  Powder  Company   Four  Votes. 

1  United  States  of  A  merica  v.  E.  I.  dn  Pont,  de  Nemours  and  Company.  In 
the  Circuit  Court  of  the  United  States  for  the  District  of  Delaware,  Gov't.  Ex. 
No.  96-b.  Pet.  Record,  Exhibits,  Vol.  1,  pp.  476-479.  The  minutes  of  the  same 
meeting  that  adopted  this  agreement  show  that  a  committee  reported  a  scale 
of  prices  which  was  also  adopted  and  made  binding  upon  the  Association. 
For  a  complete  history  of  the  powder  combinations,  see  Stevens,  Wm.  S., 
Quarterly  Journal  of  Economics,  May,  191 2,  Vol.  XXVI,  pp.  444-481. — Ed. 


Specimens  of  Early  Pooling  3 

2d. — The  officers  of  this  Association  shall  be  a  President, 
Vice-President,  Secretary,  and  Treasurer,  to  be  elected  by  ballot 
on  the  first  meeting  of  this  Association,  and  annually  thereafter, 
and  who  shall  hold  office  until  others  are  elected  in  their  stead. 

3d.— It  shall  be  the  duty  of  the  President  to  preside  at  all 
meetings  of  the  Association,  and  on  the  written  request  of  two 
members  thereof,  to  call  special  meetings  of  the  same.  In  case 
of  his  absence,  the  same  duties  will  devolve  upon  the  Vice-President. 
The  Secretary  shall  attend  all  meetings  of  the  Association,  keep 
full  record  of  their  transactions,  and  issue  such  notices  to  the 
associates  as  the  properly  authorized  officers  may  direct.  The 
Treasurer  shall  have  the  custody  of  all  funds  belonging  to  the 
Association. 

4th. — This  Association  shall  meet  quarterly:  say  in  the  first 
week  in  February,  May,  August,  and  November,  of  each  year, 
at  such  time  and  place  as  may  be  agreed  upon  at  the  previous 
quarterly  meeting,  for  the  purpose  of  establishing  prices  if  need 
be,  of  hearing  and  deciding  appeals,  and  determining  all  questions 
relative  to  the  trade  that  may  be  submitted  to  it. 

5th. — A  Council  of  five  persons,  associates,  of  whom  three 
(3)  shall  constitute  a  quorum,  shall  be  elected  by  this  Association 
at  their  first  meeting  for  organization,  and  annually  thereafter, 
holding  office  till  the  election  of  their  successors,  in  default  of  such 
annual  election.  Such  Council  shall  meet  weekly  (or  at  the  call 
of  the  chairman)  in  the  City  of  New  York,  or  elsewhere,  as  a 
majority  of  Council  shall  decide.  To  said  Council  shall  be  referred 
all  questions  of  discrepancy  and  deviations  from  prices  in  the 
different  home  markets,  all  complaints  in  writing  of  infraction 
of  agreement  by  any  agent  of  any  associated  company  or  firm; 
they  shall  adjudicate  upon  the  same,  and  the  decision  by  a  majority 
of  the  Council  shall  be  final;  provided,  that  any  associate  ag- 
grieved by  such  decision  may  appeal  to  the  next  quarterly  meeting 
of  the  Association,  pending  which  he  must  submit  to  the  decision 
of  the  Council. 

6th. — Any  manufacturer  of  Gunpowder  desiring  to  be  admitted 
a  member  of  this  Association,  may  at  any  time  signify  his  wish 
in  writing  to  the  President  thereof;  when  upon  admission  and 
on  his  signing  the  Articles  of  Association,  the  said  manufacturer 
is  at  once  entitled  to  participate  in  its  benefits,  as  he  is  likewise 
bound  by  its  obligations.  No  member  of  the  Association  shall 
withdraw  from  the  same  without  having  signified  his  intention  so 


4  Industrial  Combinations  and  Trusts 

to  do,  at  least  thirty  days  before  such  withdrawal,  to  the  President, 
who  shall  at  once  call  a  special  meeting  of  the  Association. 

7th. — The  minimum  prices  for  powder  of  the  various  sorts 
required  for  the  trade  shall  be  established  and  regulated  by  this 
Association. 

8th. — Any  funds  necessary  for  the  carrying  out  the  provisions 
of  these  Articles  shall  be  assessed  by  the  Council  upon  the  asso- 
ciates in  proportion  to  the  votes  to  which  they  are  respectively 
entitled. 

9th. — These  Articles  shall  not  be  altered  or  amended,  except 
by  a  vote  of  two-thirds  of  the  members  of  the  Association  at  a 
regular  quarterly  meeting  and  after  at  least  thirty  days'  notice 
of  the  proposed  alteration  or  amendment. 

Exhibit  2 

proceedings  of  the  kentucky  distillers  at  their  meeting 
in  louisville,  kentucky,  may,  1 888  1 

ist.  Determine  the  quantity  of  whisky  to  be  made  in  1889. 
On  this  point  11,000,000  gallons  is  recommended  as  the  maximum. 

2d.  Of  this  quantity  let  there  be  distributed  under  the  follow- 
ing rules  9,000,000  gallons,  leaving  2,000,000  gallons  as  a  reserve, 
to  be  placed  in  the  hands  of  a  committee  of  ten,  consisting  of  two 
from  each  collection  district,  to  be  allotted  in  such  quantities  and 
to  such  signers  as  in  the  judgment  of  the  committee  may  be  re- 
quired to  even  up  the  shares  of  each,  when  any  injustice,  all  facts 
duly  and  impartially  considered,  has  been  done  under  the  rule. 

3d.  Take  the  surveyed  capacity  of  the  distillers  of  the  State, 
and,  after  excluding  from  consideration  all  houses  with  a  daily 
capacity  of  less  than  40  bushels,  ascertain  the  percentage  of  capac- 
ity actually  used  for  an  assumed  period  of  156  days  in  producing 
the  crop  of  1886,  if  the  distillery  was  not  operated  in  1887,  or 
the  crop  of  1887,  or  an  average  of  the  two  years,  when  no  production 
was  made  in  1886  and  1887,  the  committee  shall  make  a  basis 
fairly  and  justly. 

4th.  Having  ascertained  as  above  the  actual  percentage  of  ca- 
pacity used  by  each,  multiply  the  surveyed  capacity  by  this  per- 
centage and  thus  ascertain  the  number  of  bushels  required   to 

'House  Report  No.  4165,  50th  Cong.,  2nd  Session,  1888,  pp.  33-36.  This 
agreement  followed  one  of  similar  character  adopted  in  June,  1887. — Ed. 


Specimens  of  Early  Pooling 

have  produced  the  quantity  of  whisky  in  a  run  of  156  days  that 
each  actually  produced  in  18S6  or  1887,  or  the  average  as  may  be 
taken  as  the  basis. 

5th.  Having  thus  equalized  all  the  houses  and  ascertained  the 
relative  number  of  bushels  daily  capacity,  multiply  this  daily  ca- 
pacity by  104  days  and  4^4  gallons  to  the  bushel,  and  ascertain 
the  gallons  each  is  entitled  to  make. 

Add  these  shares  together,  and  if  the  total  is  less  than  9,000,000 
gallons,  increase  the  days  from  104  to  the  number  required  to 
produce  the  9,000,000.  If  the  total  exceeds  0,000,000  gallons, 
reduce  the  days  to  the  number  required  to  produce  the  9,000,000. 

The  different  houses  are  entitled  to  make  the  shares  thus  ob- 
tained in  such  time  during  the  season  from  July  1,  1888,  to  July  i. 
1889,  as  may  suit  their  convenience. 

The  committee  wilh;  after  the  above  appointment  is  made,  re- 
ceive applications  for  allowance  out  of  the  2,000,000  reserved, 
fixing  a  date  in  the  future  by  which  time  all  applications  are  to  be 
filed  with  the  committee.  The  allotment  will  be  made  not  to  ex- 
ceed the  2,000,000  gallons  in  the  aggregate,  and  in  such  quantities, 
if  any,  to  each  applicant  as  the  facts  presented  may  justify. 

6th.  The  committee  shall  furnish  each  distiller  with  a  statement 
of  the  share  to  which  he  is  entitled  under  the  rule,  and  also  a 
statement  of  the  allowances,  if  any,  made  out  of  the  reserve;  said 
statements  to  be  signed  by  the  committee. 

7th.  Five  members  of  the  committee  shall  constitute  a  quorum 
for  business,  but  no  allotment  shall  be  made  except  at  fixed  time 
or  times,  of  wThich  ten  days'  notice  must  be  given  each  applicant 
in  writing.  No  member  shall  sit  as  a  committeeman  in  considering 
his  own  application. 

8th.  The  distillers  forming  this  agreement  shall  elect  a  board 
of  trustees,  to  consist  of  seven  members,  whose  duty  it  shall  be  to 
enforce  the  agreement.  The  committee  described  in  sections  pre- 
ceding this  section  shall  be  charged  with  the  duty  of  obtaining 
to  the  agreement  the  signatures  of  such  distillers  as  may  be  absent 
at  the  meeting,  and  shall,  when  this  work  is  performed,  deliver 
to  the  chairman  of  the  board  of  trustees  this  agreement,  and  a 
statement  giving  the  shares  of  each  distiller. 

9th.  The  board  of  trustees  shall,  within  ten  days  after  their  elec- 
tion, elect  a  chairman,  and  is  hereby  authorized  and  directed  to 
secure  an  office  in  the  city  of  Louisville,  and  to  appoint  a  compe- 
tent secretary  and  fix  his  salary.     The  secretary  shall  keep  a  full 


6  Industrial  Combinations  and  Trusts 

and  complete  record  of  the  bond  stock  of  the  signers  to  this  agree- 
ment, from  reports  received  from  each  distiller,  as  directed  in 
section  10. 

ioth.  Each  distiller  is  requested  and  directed  to  send  the  sec- 
retary, when  the  office  is  established,  a  full  and  complete  state- 
ment of  the  1886  and  1887  whiskies,  by  months,  then  in  his  dis- 
tillery bonded  warehouses,  and  from  the  1st  to  the  5th  of  each  suc- 
ceeding month,  a  statement  of  the  withdrawals  and  deposits  by 
months,  together  with  a  check  for  such  an  amount  per  barrel  of 
deposits  as  may  be  fixed  by  the  board  of  trustees  as  sufficient  to 
pay  all  expenses,  provided  such  rate  shall  not  exceed  4  cents  per 
barrel  deposited  in  bond. 

11.  A  full  and  accurate  account  shall  be  kept  of  all  moneys 
received  and  of  all  disbursements.  The  secretary  shall  furnish, 
not  later  than  the  20th  of  each  month,  to  each  signer  a  full  and 
complete  statement  of  the  bond  stock  of  the  signers  by  months 
and  years,  as  of  the  last  day  of  the  preceding  month. 

12.  The  agreement  to  be  signed  is  in  substance  the  same  as  that 
signed  in  1888.  The  amount  as  determined  by  the  committee  as 
the  share  of  each  is  to  be  placed  opposite  each  name  by  the  trustees 
from  the  statements  furnished  by  the  committee.  The  trustees 
shall  then  mail  to  each  signer  a  statement  setting  forth  the  quantity 
placed  opposite  the  name  of  each.  If  said  quantity  differs  from 
that  as  shown  in  the  statements  furnished  each  signer  by  the  com- 
mittee, said  signer  must  at  once  report  the  fact  to  the  trustees, 
who  shall  investigate  and  ascertain  and  correct  the  error,  if  any. 

13.  The  committee  in  allotting  the  reserve  of  2,000,000  gallons 
will  give  the  fullest  consideration  to  signers  that  were  most  con- 
servative in  1886  and  1887,  in  order  to  give  to  such  signers  the 
proper  reward  for  their  consideration. 

In  event  of  any  dispute  or  controversy  except  as  provided  in  the 
next  section,  arising  between  the  committee  or  trustee  and  any 
party  to  the  contract,  the  same  shall  be  settled  by  arbitrators, 
to  be  selected  as  follows:  one  by  the  committee  or  trustee  and  one 
by  the  party,  and  these  two  an  umpire,  whose  award  shall  be  final 
between  the  parties. 

There  shall  be  selected  by  the  convention  a  committee  of  five 
men,  one  from  each  collection  district,  who  shall  be  known  as  the 
board  of  appeal,  to  whom  any  party  who  deems  himself  aggrieved 
by  any  allotment  of  capacity  may  appeal,  which  appeal  shall  be 
made  in  ten  days  after  notice  of  allotment  and  five  days'  notice 


Specimens  of  Early  Pooling 

given  to  the  committee  from  whom  the  appeal  is  prosecuted,  and 
the  decision  of  said  committee  to  be  made  in  ten  days  and  be  final. 

That  the  committee  to  obtain  the  signatures  to  the  contract 
shall  not  deliver  the  same  to  the  trustee  until  said  contract  shall 
be  signed  and  agreed  by  85  per  cent,  of  distilling  capacity  of  the 
State,  excluding  from  such  capacity  those  producing  only  high 
wines,  alcohol,  and  neutral  spirits. 

The  delivery  of  the  contract  shall  be  conclusive  evidence  that 
said  terms  have  been  complied  with. 

That  the  allotment  committee  is  authorized  to  employ  a  secre- 
tary and  fix  his  salary  for  the  time  they  shall  be  in  existence. 

The  following  committees  were  then  appointed: 

ALLOTMENT   COMMITTEE 

Second  District. — M.  V.  Monarch  and  Geo.  D.  Mattingly. 
Fifth  District— -T.  H.  Sherley-and  R.  W.  Wathen. 
Sixth  District — T.  J.  Megibben  and  William  Adams. 
Seventh  District. — E.  H.  Taylor,  jr.,  and  Jos.  M.  Kimbrough. 
Eighth  District. — John  B.  Thompson  and  D.  L.  Moore. 

APPEAL  COMMITTEE 

Second  District. — R.  Monarch. 
Fifth  District. — Nicholas  Miller. 
Sixth  District. — E.  W.  Bramble. 
Seventh  District. — James  M.  Saffell. 
Eighth  District — Walter  Bennett. 

The  board  of  trustees  for  the  ensuing  year  are: — Herman  Beck- 
urts,  J.  M.  Atherton,  Nicholas  Miller,  D.  L.  Moore,  Jas.  McSorley, 
R.  Monarch,  S.  J.  Ashbrook. 

The  following  resolutions  were  offered  and  adopted: 

By  Mr.  Megibben:  That  the  allotment  committee  is  authorized 
to  confer  with  the  committee  of  the  highwine  trust,  and  if  possible 
secure  the  stoppage  of  production  of  bourbons  by  said  trust  in 
this  and  other  States. 

By  Mr.  Taylor:  That  a  committee  of  three  be  appointed  by  the 
chairman  to  see  the  Commissioner  of  Internal  Revenue,  with  a  view 
to  call  his  attention  to  and  seek  protection  from  vicarious  manu- 
facture at  registered  distilleries,  and  the  manufacture  of  what  are 
known  as  "new  process"  whiskies  in  this  State. 


8  Industrial  Combinations  and  Trusts 

Committee  appointed:  E.  H.  Taylor,  jr.,  T.  H.  Sherley,  T.  J. 
Megibben. 

By  Mr.  Sherley:  Whereas,  it  is  the  practice  of  a  number  of  dis- 
tillers, after  the  packages  have  been  filled  from  the  receiving  cistern 
to  force  hot  air  into  the  packages,  or  by  other  processes  to  color 
the  spirits  and  give  them  the  appearance  of  older  goods,  the  same 
being  placed  on  the  market  as  the  regular  bourbon  or  sourmash 
whiskies:    Therefore  be  it 

Resolved,  That  all  whiskies  that  undergo  any  treatment  after 
they  have  been  put  into  the  barrels  be  known  to  the  trade  as  "new 
process  whisky,"  and  should  be  so  branded.  Referred  to  special 
committee  of  three  to  lay  before  the  Commissioner. 

By  Mr.  Atherton:  Resolved,  By  the  distillers  of  Kentucky,  in 
convention  assembled,  that  we  are  opposed  to  the  repeal  of  the  tax 
on  fruit  brandies  as  ruinous  to  our  trade,  opening  the  door  to  fraud, 
and  destructive  of  the  whole  internal-revenue  system.  Also  to  the 
proposition  to  operate  any  distillery  without  the  supervision  of  a 
Government  store-keeper  as  now  provided  by  law. 

The  allotment  committee  under  the  Kentucky  distillers'  agree- 
ment for  i888-'89  have  organized  by  electing  Col.  T.  H.  Sherley 
chairman,  and  T.  M.  Gilmore  secretary. 

In  accordance  with  the  distillers'  agreement,  which  directs  the 
trustees  to  organize  within  ten  days  after  their  election,  a  meeting 
of  that  body  was  called  for  3  p.  m.  of  the  2d  instant  at  the  office  of 
the  Circular,  in  this  city.  Those  present  were  Herman  Beckurts, 
James  McSorley,  John  M.  Atherton,  and  Nicholas  Miller.  F.  S. 
Ashbrook,  R.  Monarch,  and  D.  L.  Moore  were  present  by  proxies. 
Mr.  Herman  Beckurts  was  unanimously  elected  chairman  for  the 
ensuing  year,  which  office  he  accepted.  T.  M.  Gilmore  was  elected 
secretary. 

CONTRACT 

Louisville,  Ky.,  May  24,  1888. 

The  undersigned  do  mutually  agree  and  covenant  each  with  all 
and  every  the  other  signers  hereof  and  of  certified  true  copies  of 
the  same  as  follows,  to  wit: 

First.  It  is  for  the  pecuniary  advantage  of  each  and  every  the 
parties  hereto  that  each  and  every  the  other  parties  should  not 
make  more  whisky  during  the  season  from  July  1,  1888,  to  July  1, 
1889,  than  is  hereinafter  set  down  opposite  the  signature  of  the 


Specimens  of  Early  Pooling  9 

several  parties  as  their  agreed  production  during  said  distilling  sea- 
son, which  amount  shall  be  fixed  and  determined  by  the  committee 
of  allotment  selected  and  appointed  and  authorized  to  act  in  ac- 
cordance with  the  rules  and  regulations,  as  provided  in  t  he  rest  ilution 
adopted  by  the  Kentucky  distillers  in  convention  assembled  on 
May  24,  1S88,  and  by  the  trustees,  set  opposite  their  signatures. 

Second.  It  is  further  agreed  that  the  several  parties  hereto  can 
and  do  enter  into  this  agreement  with  the  other  parties  hereto, 
and  assume  the  obligations  hereinafter  expressed,  upon  the  mature 
and  deliberate  conviction  that  it  is  for  the  pecuniary  benefit  of 
each  so  to  do. 

Third.  And  the  parties,  in  consideration  of  the  premises  and  of 
$1  to  each  the  other  paid  and  of  divers  other  valuable  consideration 
each  of  them  moving,  do  mutually  agree  and  covenant  that  they 
will  severally  make  during  the  distilling  season  from  July  1,  1888, 
to  July  1,  1889,  the  quantities  of  whisky  to  be  determined  and  set 
opposite  their  signatures  as  hereinbefore  provided;  with  full  liberty 
and  right,  however,  to  each  and  every  signatory  hereto  to  manu- 
facture as  much  more  whisky  as  he  may  choose  upon  the  conditions 
hereinafter  set  forth. 

Fourth.  If  any  party  hereto  shall  conclude  to  make  and  does 
make  whisky  in  excess  of  the  amount  so  to  be  ascertained  and  set 
opposite  his  name,  he  shall  and  will  pay,  and  hereby  covenants 
and  agrees  to  pay,  within  thirty  days  after  the  1st  day  of  July,  1889, 
unto  the  trustees  hereinafter  named,  a  sum  of  money  equal  to  20 
cents  for  each  proof  gallon  of  whisky  so  by  him  made  in  excess  of 
the  production  set  opposite  his  signature;  the  same  to  be  distributed 
by  the  said  trustees  unto  the  other  signatories  hereof  not  producing 
more  than  the  amount  set  opposite  their  names  as  compensation 
to  them  for  their  refraining  from  so  doing  and  to  re-imburse  to 
them  the  profit  which  they  surrendered  by  not  making  a  greater 
amount  of  whisky  than  is  opposite  their  names  set  forth,  and  as  an 
offset  to  the  increased  profits  to  such  overproducer.  The  said  dis- 
tribution shall  be  by  equal  pro  rata  among  those  not  making  more 
than  is  set  opposite  their  names,  based  upon  the  contemplated 
production  of  each  as  set  forth. 

Fifth.  And  the  parties  hereto  recognizing  fully  the  right  of  each 
to  make  as  much  whisky  as  he  may  choose,  agree  and  covenant 
that  the  said  sum  of  20  cents  per  gallon  so  to  be  computed  is  a  fair 
and  just  compensation  and  is  fixed  as  the  liquidated  and  indis- 
putable remuneration  to  be  made  by  such  producer  to  those  parties 


io  Industrial  Combinations  and  Trusts 

hereto  who  for  his  profit  and  at  this  request  refrain  from  making 
more  than  therein  by  them  indicated  and  thereby  lose  profit  which 
they  might  otherwise  make. 

Sixth.  That  Herman  Beckurts,  D.  L.  Moore,  R.  Monarch, 
J.  M.  Atherton,  James  McSorley,  Nick  Miller,  and  S.  J.  Ashbrook 
are  named  as  trustees,  and  they,  or  a  majority  of  them,  may  sue 
for  any  such  remuneration  in  their  own  names,  as  trustees  for  the 
benefit  of  those  concerned;  and  all  outlays  and  expenses,  including 
counsel  fees,  shall  be  paid  out  of  the  fund  as  provided  in  section  io 
of  the  resolutions  adopted  on  May  24,  by  the  distillers'  meeting. 

Any  vacancy  occurring  in  said  trusteeship  by  death,  resignation, 
refusal  to  act,  or  other  disability  shall  be  filled  by  the  other  trustees. 

The  trustees  may  call  meetings  of  the  signatories  at  any  time  on 
ten  days'  notice  given  through  the  United  States  mail. 

That  no  party  to  this  agreement  shall  rent,  lease,  or  otherwise 
dispose  of  the  distillery  property  owned,  operated,  or  controlled 
by  him  or  them  for  the  purpose  of  manufacturing  therein  any 
quantity  of  distilled  spirits  beyond  the  amount  apportioned  and 
alotted1  to  him  or  them  hereunder;  and  anything  done  or  device 
resorted  to  for  such  purpose  or  with  such  intent  or  effect  shall 
render  such  party  liable  for  all  damages  as  herein  provided. 

Any  signatory  hereof  shall  have  the  right  to  transfer  his  allot- 
ment hereunder  and  the  right  to  manufacture  the  same  to  any  other 
signatory,  in  which  case  the  signatory  so  acquiring  may  at  his  own 
distillery  or  that  of  the  transfer  manufacture  such  allotment  in  ad- 
dition to  his  own  personal  allotment. 

For  the  purpose  of  obtaining  signatures  to  this  agreement  copies 
thereof  may  be  circulated,  each  copy  to  be  authenticated  as  a  true 
copy  by  the  chairman  of  the  allotment  committee,  namely,  T.  H. 
Sherley,  and  signatures  to  such  copies  shall  have  full  effect  as 
though  made  to  the  original  paper,  and  all  such  copies  and  the 
original  shall  be  held  and  treated  and  have  effect  as  a  single  paper. 

Exhibit  3 
agreement  of  envelope  manufacturers  2 

This  agreement,  made  this  21st  day  of  June,  1887,  between  the 
Morgan  Envelope  Company,  the  Whitcomb  Envelope  Company, 

1  Thus  in  original. — Ed. 

2  Report  of  the  Senate  Committee  on  General  Laws  on  Investigation  Relative 
to  Trusts,  N.  Y.  Sen.  Doc.  No.  50,  1888,  pp.  468-470. 


Specimens  of  Early  Pooling 


ii 


the  White,  Corbin  &  Co.,  the  Holyoke  Envelope  Company,  the 
Plimpton  Manufacturing  Company,  the  Berlin  &  Jones  Envelope 
Company,  Samuel  Raynor  &  Co.,  J.  O.  Preble  &  Co.,  and  Lewis 
J.  Powers,  doing  business  under  the  name  of  Powers  Paper  Com- 
pany, parties  of  the  first  part,  and  the  Standard  Envelope  Com- 
pany, party  of  the  second  part. 

Witnesseth:  i.  The  parties  of  the  first  part  hereby  severally 
agree  that  within  fifteen  days  after  the  first  day  of  each  and  ever) 
calendar  month,  beginning  with  the  month  of  August  next,  they 
or  it  will  render  a  sworn  statement  to  the  party  of  the  second  part, 
addressed  to  its  treasurer,  of  the  total  number  of  thousands  of 
envelopes  they,  the  said  parties  of  the  first  part,  respectively,  shall 
have  sold  and  delivered  during  the  previous  calendar  month,  speci- 
fying in  said  statement  how  many  of  the  envelopes  so  sold  and  de- 
livered by  them  or  it,  have  been  sold  and  delivered  to  any  of  the 
other  parties  of  the  first  part  named  in  this  agreement. 

2.  The  parties  of  the  first  part  hereby  severally  further  agree  to 
pay  to  the  Standard  Envelope  Company,  on  the  fifteenth  day  of 
the  same  month  in  which  such  statement  is  to  be  made,  by  the  terms 
hereof,  a  tax  of  fifteen  cents  upon  each  and  every  thousand  en- 
velopes so  sold  and  delivered  by  them  or  it,  except  upon  the  en- 
velopes so  sold  and  delivered  by  them  or  it  to  any  of  the  other 
parties  of  the  first  part  named  in  this  agreement.  This  rate  of  tax 
may  at  any  time  be  changed,  by  the  written  assent  of  any  seven 
of  the  parties  herein  named  as  parties  of  the  first  part.  It  is  under- 
stood and  agreed,  however,  by  and  between  the  parties  to  this 
agreement,  that  no  monthly  statement  is  to  be  required  and  no 
monthly  tax  is  to  be  paid  upon  the  envelopes  which  are  excluded 
from  the  terms  and  operation  of  the  written  agreement,  of  even  date 
herewith,  between  the  Morgan  Envelope  Company  and  twelve 
other  manufacturers  of  envelopes,  parties  of  the  first  part,  and  the 
Standard  Envelope  Company,  part 1  of  the  second  part. 

3.  Whereas  said  Standard  Envelope  Company,  by  written  in- 
strument, dated  on  or  about  April  30,  1887,  has  contracted  with 
the  firm  of  Lester  &  Wasley,  of  Norwich,  Conn.,  for  the  purchase 
of  all  envelope  machines  to  be  made  or  sold  by  them  during  the 
five  years  then  next  ensuing  (said  Lester  &  Wasley  having  therein 
agreed  not  to  furnish  more  than  twenty-four  machines  during  any 
one  year),  the  parties  of  the  first  part  hereby  severally  agree  te 
purchase  of  said  Standard  Envelope  Company,  and  to  pay  therefor 

1  Thus  in  original. — Ed. 


12  Industrial  Combinations  and  Trusts 

the  price  of  each  machine  named  in  said  Lester  &  Wasley  contract, 
for  the  number  of  machines  that  shall  be  allotted  to  said  parties 
of  the  first  part,  respectively,  by  the  directors  of  the  said  Standard 
Envelope  Company,  or  in  lieu  of  such  purchase,  if  any  party  of  the 
first  part  shall  so  elect,  they  or  it,  may  decline  to  take  any  or  all 
machines  so  allotted,  and  to  pay  said  Standard  Envelope  Com- 
pany the  sum  of  $500  for  each  machine  so  declined. 

4.  To  the  performance  of  this  agreement  the  parties  hereto 
severally  bind  themselves,  their  and  each  of  their  executors  and 
administrators,  successors  and  assigns,  for  the  term  of  five  years. 
In  witness  whereof  the  various  parties  hereto  have  severally  set 
their  hands  and  seals,  the  day  and  year  first  above  mentioned. 

(Here  follows  list  of  signatures.) 


I 


CHAPTER  II 

REPRESENTATIVE  TRUSTS 
NOTE 

Since  the  pool  was  primarily  only  a  gentlemen's  agreement  and 
its  provisions  and  regulations  were  unenforcible  through  the  courts, 
it  possessed  certain  disadvantages.  But  since  the  pool  has  persisted 
throughout  the  entire  course  of  our  industrial  history  since  the  Civil 
War  and  has  been  the  form  under  which  some  of  our  more  recent 
combinations  have  operated,  it  may  be  asserted  that  these  dis- 
advantages have  been  somewhat  overestimated.  Yet  it  is  none  the 
less  true  that  there  were  certain  undesirable  features  connected 
with  it  and  very  shortly  a  new  form  of  combination  was  devised 
known  as  the  Trust.  For  many  years  it  was  supposed  that  the 
Standard  Oil  Trust  of  1882  was  the  first  agreement  of  this  character. 
More  recent  revelations,  however,  have  shown  that  the  original 
Trust  agreement  was  made  by  this  company  in  1879.  In  conse- 
quence, both  the  agreement  of  1879  and  that  of  1882  have  been 
included  under  this  group. 

The  Standard  Oil  Company  did  not  long  retain  the  monopoly 
of  this  new  scheme  of  combination.  Others  saw  plainly  the  ad- 
vantages it  afforded,  and  speedily  adopted  it.  In  the  latter  part 
of  1884  the  American  Cotton  Oil  Trust  was  organized  in  the  State 
of  Arkansas.  It  embraced  some  eighty-five  concerns  doing  business 
throughout  the  South.  In  1887  three  other  Trusts  were  formed. 
The  Distillers'  and  Cattle  Feeders'  Trust  was  a  successor  to  the 
Western  Export  Association,  a  pool  of  the  whisky  manufacturers 
north  of  the  Ohio  River  which  had  been  organized  in  1881.  The 
others  organized  in  the  same  year  were  the  National  Lead  Trust 
and  the  Sugar  Trust.  The  technical  name'of  the  latter  combination 
was  the  Sugar  Refineries  Company.  It  may  also  be  noted  than  an 
abortive  attempt  was  made  to  organize  the  Cordage  Industry  into 
a  Trust.  The  Trust  agreements  reproduced  here  are  all  at  the 
present  time  well  known  documents  but  it  has  none  the  less  seemed 
advisable  to  include  them  in  the  space  of  this  book  for  sake  of  com- 
pleteness and  for  purposes  of  analyzation. — Ed. 

13 


i4  Industrial  COMBINATIONS  and   Trusts 


Exhibit  i 

standard  oil  trust  agreement  of  1879  * 

Whereas  the  Standard  Oil  Company  of  Cleveland,  Ohio,  holds 
the  possession  of  certificates  for  certain  stocks  and  interests  which 
it  is  desirable  to  distribute  among  the  parties  entitled  thereto; 
and  whereas  such  stocks  and  interests  now  stand  in  the  names  of 
several  persons,  and  it  is  desirable  for  convenience  in  dividing  them 
that  all  be  transferred  to  trustees,  and  that  the  same  be  so  trans- 
ferred by  the  Standard  Oil  Company,  by  each  party  holding 
the  same,  and  by  every  person  holding  or  claiming  an  interest 
therein. 

Now,  in  consideration  of  the  foregoing,  and  of  the  sum  of  one 
dollar  to  us  paid,  and  other  considerations  satisfactory  to  us,  we, 
the  undersigned,  hereby  grant,  assign,  transfer,  and  convey  all 
our  right,  title,  and  interests  and  all  the  right,  title,  and  interest 
of  each  and  every  one  of  us  of  whatever  name  and  nature  in  and 
to  all  and  singular  the  following-described  stocks  and  interests, 
to  wit: 

Entire  capital  stock  of  Long  Island  Oil  Company. 
2,700  shares  capital  stock  of  Devoe  Manufacturing  Co. 
Entire  capital  stock  of  Charles  Pratt  &  Co. 
5,059  shares  capital  stock  of  Baltimore  United  Oil  Co. 
525  shares  capital  stock  of  Keystone  Refining  Co. 
Entire  capital  stock  of  Sone  &  Fleming  Manufacturing  Co., 
Limited. 

Entire  capital  stock  of  Atlantic  Refining  Co. 

Entire  capital  stock  of  Standard  Oil  Co.  (of  Pennsylvania). 

Entire  capital  stock  of  Model  Oil  Co. 

1,775  shares  capital  stock  of  American  Lubricating  Oil  Co. 

Entire  capital  stock  of  Camden  Consolidated  Oil  Co. 

2,268  shares  capital  stock  of  Central  Refining  Co. 

700  shares  capital  stock  of  Maverick  Oil  Co. 

Entire  capital  stock  of  Republic  Refining  Co. 

400  shares  capital  stock  of  Waters-Pierce  Oil  Co. 

1  Standard  Oil  Co.  of  New  Jersey  et  al.  v.  U.  S.  of  America.  In  the  Supreme 
Court  of  the  United  States,  Brief  for  the  United  States,  Appendix  A,  Vol.  I, 
pp.  414-416. 


Representative  Trusts  15 

300  shares  capital  stock  of  Consolidated  Tank  Line  Co. 

Entire  capital  stock  of  American  Transfer  Co. 

41,590  shares  capital  stock  of  United  Pipe  Lines. 

Entire  interest  in  and  capital  stock  of  Paine,  Ablett  &  Co., 
Limited. 

i45/i75ths  of  entire  interest  in  and  capital  stock  of  Eclipse 
Lubricating  Oil  Co.,  Limited. 

3/4ths  of  entire  interest  in  and  capital  stock  of  H.  C.  Van  Tine 
&  Co.  (Limited). 

7/8ths  of  entire  interest  in  and  capital  stock  of  Galena  Oil  Works 
(Limited). 

Entire  capital  stock  of  Smith's  Ferry  Oil  Transpn.  Co. 

14,713  (old)  shares  stock  and  interest  in  Producers'  Consoli- 
dated Land  &  Petroleum  Co. 

Special  investment  at  Oil  City,  Pa. 

Business  and  property  of  Star  Oil  Co.,  Erie,  Pa. 

Business  and  property  of  Warden,  Frew  &  Co.,  Philadelphia, 
Pa. 

Entire  capital  stock  of  Philadelphia  Refining  Co. 

Entire  capital  stock  of  Olean  Petroleum  Co.  (Limited). 

Entire  capital  stock  of  Columbia  Conduit  Co.  and  also  all 
other  interests  of  every  kind  and  description  held  by  the 
Standard  Oil  Company  or  in  which  it  has  any  interest  which 
can  be  or  by  right  ought  to  be  divided  and  distributed  among 
the  parties  entitled  thereto,  without  affecting  its  proper,  le- 
gitimate, and  efficient  operations  as  a  corporation,  to  Myron 
R.  Keith,  George  F.  Chester,  and  George  H.  Vilas,  as  trust- 
ees, to  have  and  to  hold  said  stocks  and  interests  to  them  and 
their  survivors  and  successors,  in  trust  nevertheless  for  the 
following  purposes,  to  wit:  To  hold,  control,  and  manage 
the  said  stocks  and  interests  for  the  exclusive  use  and  benefit 
of  the  following-named  persons  and  in  the  following  proportions 
named: 

Charles  Pratt 2700/35000  thereof. 

Horace  A.  Pratt 15/35000  " 

Henry  H.  Rogers 910/35000  " 

C.  M.  Pratt 200/35000  " 

Wm.  Rockefeller 1600/35000  " 

•0.  B.  Jennings 818/35000  " 

W.  H.  Macy 59/35000  " 


i6  Industrial  Combinations  and  Trusts 

W.  II.  Macy,  jr 28/35000  thereof. 

Estate  of  Josiah  Macy 892/35000 

A.  J.  Pouch 178/35000 

J.  A.  Bostwick 1872/35000 

Warden,  Frew  &  Co 485/35000 

Chas.  Lockhart 1408/35000 

Wm.  C.  Warden 1292/35000 

O.  H.  Payne,  trustee 61/35000 

S.  V.  Harkness 2925/35000 

H.  M.  Flagler 3000/35000 

Daniel  Bushnell 97/35000 

Jos.  L.  Warden 98/35000 

J.  J.  Vandergrift 500/35000 

F.  A.  Arter 35/35°°° 

Gustave  Heye 178/35000 

L.  G.  Harkness 178/35000 

Hanna  &  Chapin 263/35000 

A.  M.  McGregor 118/35000 

D.  Brewster 409/35000 

W.  C.  Andrews 990/35000 

Horace  A.  Hutchins n  1/35000 

John  D.  Archbold 350/35000 

John  D.  Rockefeller 8984/35000 

J.  N.  Camden 200/35000 

W.  P.  Thompson 132/35000 

D.  M.  Harkness ' 323/35000 

O.  H.  Payne 2637/35000 

John  Huntington 584/35000 

W.  T.  Wardell 78/35000 

H.  W.  Payne 292/35000 

and  to  divide  and  distribute  the  same  as  soon  as  they  can  conven- 
iently do  so  between  the  said  persons  for  whose  benefit  they  hold 
the  same  as  aforesaid,  and  in  the  respective  proportions  aforesaid; 
with  full  power  and  authority  to  the  survivors  of  the  said  trustees 
in  case  of  the  death  of  either  of  them  to  nominate  and  appoint  a 
successor  to  such  deceased  trustee  if  they  shall  think  it  expedient 
so  to  do  or  else  to  continue  the  said  trust  without  filling  such 
vacancy. 

In  witness  whereof  the  Standard  Oil  Co.  has,  by  its  president 
and  secretary,  duly  authorized  thereto,  set  its  name  and  affixed 


Representative  Trusts  17 

its  corporate  seal,  and  the  others  of  the  undersigned  have  hereto 
set  their  hands  and  seals  this  eighth  day  of  April,  a.  d.  1879. 

Standard  Oil  Company, 
By  John  D.  Rockefeller, 

Prest. 
Attest: 
H.  M.  Flagler,  Secy. 

(Here  follows  list  of  signatures.) 


Exhibit  2 

standard  oil  trust  agreement  and  supplemental  trust 
agreement  of  1 88  2  x 

This  agreement,  made  and  entered  upon  this  second  day  of 
January,  A.  d.  1882,  by  and  between  all  the  persons  who  shall  now 
or  may  hereafter  execute  the  same  as  parties  thereto,  witnesseth: 

I.  It  is  intended  that  the  parties  to  this  agreement  shall  embrace 
three  classes,  to  wit: 

(1)  All  the  stockholders  and  members  of  the  following  cor- 
porations and  limited  partnerships,  to  wit: 

Acme  Oil  Co.  (New  York),  Acme  Oil  Co.  (Pennsylvania),  At- 
lantic Refining  Co.,  of  Phila.;  Bush  &  Co.  Limited,  Camden  Con- 
solidated Oil  Co.,  Elizabethport  Acid  Works,  Imperial  Refining 
Co.,  Limited,  Chas,  Pratt  &  Co.,  Paine,  Ablett  &  Co.,  Limited, 
Standard  Oil  Co.  (Ohio),  Standard  Oil  Co.  (Pittsburg),  Smith's 
Ferry  Oil  Trans.  Co.,  Solar  Oil  Co.  Limited,  Sone  &  Fleming  Mfg. 
Co.,  Limited. 

Also  all  the  stockholders  and  members  of  such  other  corporations 
and  limited  partnerships  as  may  hereafter  join  in  this  agreement 
at  the  request  of  the  trustees  herein  provided  for. 

(2)  The  following  individuals,  to  wit: 

W.  C.  Andrews,  John  D.  Archbold,  Lide  K.  Arter,  J.  A.  Bostwick, 
Benj.  Brewster,  D.  Bushnell,  Thomas  C.  Bushnell,  J.  N.  Camden, 
Henry  L.  Davis,  H.  M.  Flagler,  Mrs.  H.  M.  Flagler,  H.  M.  Hanna, 
and  George  W.  Chapin,  D.  M.  Harkness,  D.  M.  Harkness,  trustee; 
S.  V.  Harkness,  John  Huntington,  H.  A.  Hutchins,  Chas.  F.  G. 
Heye,  O.  B.  Jennings,  Chas.  Lockhart,  A.  M.  McGregor,  Wm.  H. 
Macy,   Wm.   H.   Macy,   jr.,   estate    of  Josiah   Macy,   jr.,  Wm. 

1  Appendix.    Report  of  Industrial  Commission,  Vol.  I,  pp.  1221-26. 


i8  Industrial  Combinations  and  Trusts 

H.  Macy,  jr.,  executor;  0.  H.  Payne,  O.  H.  Payne,  trustee; 
Chas.  Pratt,  Horace  A.  Pratt,  C.  M.  Pratt,  A.  J.  Pouch,  John  D. 
Rockefeller,  Wm.  Rockefeller,  Henry  H.  Rogers,  W.  P.  Thompson, 
J.  J.  Vandergrift,  Wm.  T.  Warclwell,  W.  G.  Warden,  Joseph  L. 
Warden;  Warden,  Frew  &  Co.,  Louise  C.  Wheaton,  Julia  H.  York, 
George  H.  Vilas,  M.  R.  Keith,  Geo.  F.  Chester,  trustees. 

Also  all  such  individuals  as  may  hereafter  join  in  this  agreement 
at  the  request  of  the  trustees  herein  provided  for. 

(3)  A  portion  of  the  stockholders  and  members  of  the  following 
corporations  and  limited  partnerships,  to  wit: 

American  Lubricating  Oil  Co.,  Baltimore  United  Oil  Co.,  Beacon 
Oil  Co.,  Bush  &  Denslow  Manuf'g  Co.,  Central  Refining  Co.,  of 
Pittsburg;  Chesebrough  Manuf'g  Co.,  Chess-Carley  Co.,  Con- 
solidated Tank  Line  Co.,  Inland  Oil  Co.,  Keystone  Refining  Co., 
Maverick  Oil  Co.,  National  Transit  Co.,  Portland  Kerosene  Oil 
Co.,  Producers'  Con'd  Land  and  Petroleum  Co.,  Signal  Oil  Works, 
Limited,  Thompson  and  Bedford  Co.,  Limited,  Devoe  Manuf'g 
Co.,  Eclipse  Lubricating  Oil  Co.,  Limited,  Empire  Refining  Co., 
Limited,  Franklin  Pipe  Co.,  Limited,  Galena  Oil  Works,  Limited, 
Galena  Farm  Oil  Co.,  Limited,  Germania  Mining  Co.,  Vacuum 
Oil  Co.,  H.  C.  Van  Tine  &  Co.,  Limited,  Waters-Pierce  Oil  Co. 

Also  stockholders  and  members  (not  being  all  thereof)  of  other 
corporations  and  limited  partnerships  who  may  hereafter  join  in 
this  agreement  at  the  request  of  the  trustees  herein  provided  for. 

II.  The  parties  hereto  do  covenant  and  agree  to  and  with  each 
other,  each  in  consideration  of  the  mutual  covenants  and  agree- 
ments of  the  others,  as  follows: 

(1)  As  soon  as  practicable  a  corporation  shall  be  formed  in  each 
of  the  following  States,  under  the  laws  thereof,  to- wit:  Ohio,  New 
York,  Pennsylvania  and  New  Jersey;  provided,  however,  that  in- 
stead of  organizing  a  new  corporation,  any  existing  charter  and 
organization  may  be  used  for  the  purpose  when  it  can  advan- 
tageously be  done. 

(2)  The  purposes  and  powers  of  said  corporations  shall  be  to 
mine  for,  produce,  manufacture,  refine,  and  deal  in  petroleum 
and  all  its  products,  and  all  the  materials  used  in  such  business, 
and  transact  other  business  collateral  thereto.  But  other  purposes 
and  powers  shall  be  embraced  in  the  several  charters  such  as  shall 
seem  expedient  to  the  parties  procuring  the  charter,  or,  if  necessary 
to  comply  with  the  law,  the  powers  aforesaid  may  be  restricted 
and  reduced. 


Representative  Trusts  19 

(3)  At  any  time  hereafter,  when  it  may  seem  advisable  to  the 
trustees  herein  provided  for,  similar  corporations  may  be  formed 
in  other  States  and  Territories. 

(4)  Each  of  said  corporations  shall  be  known  as  the  Standard 

Oil  Co.  of (and  here  shall  follow  the  name  of  the  State 

or  Territory  by  virtue  of  the  laws  of  which  said  corporation  is 
organized). 

(5)  The  capital  stock  of  each  of  said  corporations  shall  be  fixed 
at  such  an  amount  as  may  seem  necessary  and  advisable  to  the 
parties  organizing  the  same,  in  view  of  the  purpose  to  be  accom- 
plished. 

(6)  The  shares  of  stock  of  each  of  said  corporations  shall  be 
issued  only  for  money,  property,  or  assets  equal  at  a  fair  valuation 
to  the  pat  value  of  the  stock  delivered  therefor. 

(7)  All  of  the  property,  real  and  personal,  assets,  and  business 
of  each  and  all  of  the  corporations  and  limited  partnerships  men- 
tioned or  embraced  in  class  (1)  shall  be  transferred  to  and  vested 
in  the  said  several  Standard  Oil  companies.  All  of  the  property, 
assets,  and  business  in  or  of  each  particular  State  shall  be  trans- 
ferred to  and  vested  in  the  Standard  Oil  Co.  of  that  particular 
State,  and  in  order  to  accomplish  such  purpose  the  directors  and 
managers  of  each  and  all  of  the  several  corporations  and  limited 
partnerships  mentioned  in  class  first  are  hereby  authorized  and 
directed  by  the  stockholders  and  members  thereof  (all  of  them  be- 
ing parties  to  this  agreement)  to  sell,  assign,  transfer,  convey,  and 
make  over,  for  the  consideration  hereinafter  mentioned,  to  the 
Standard  Oil  Co.  or  companies  of  the  proper  State  or  States,  as 
soon  as  said  corporations  are  organized  and  ready  to  receive  the 
same,  all  the  property,  real  and  personal,  assets,  and  business  of 
said  corporations  and  limited  partnerships.  Correct  schedules  of 
such  property,  assets,  and  business  shall  accompany  each  transfer. 

(8)  The  individuals  embraced  in  class  second  of  this  agreement 
do  each  for  himself  agree,  for  the  consideration  hereinafter  men- 
tioned, to  sell,  assign,  transfer,  convey,  and  set  over  all  the  property, 
real  and  personal,  assets,  and  business  mentioned  and  embraced 
in  schedules  accompanying  such  sale  and  transfer  to  the  Standard 
Oil  Company  or  Companies  of  the  proper  State  or  States,  as  soon 
as  the  said  corporations  are  organized  and  ready  to  receive  the 
same. 

(9)  The  parties  embraced  in  class  third  of  this  agreement  do 
covenant  and  agree  to  assign  and  transfer  all  of  the  stock  held  by 


20  Industrial  Combinations  and  Trusts 

them  in  the  corporations  or  limited  partnerships  herein  named, 
to  the  trustees  herein  provided  for,  for  the  consideration  and  upon 
the  terms  hereinafter  set  forth.  It  is  understood  and  agreed  that 
the  said  trustees  and  their  successors  may  hereafter  take  the  as- 
signment of  stocks  in  the  same  or  similar  companies  upon  the  terms 
herein  provided,  and  that  whenever  and  as  often  as  all  the  stocks 
of  any  corporation  and  limited  partnership  are  vested  in  said  trust- 
ees the  proper  steps  may  then  be  taken  to  have  all  the  money, 
property,  real  and  personal,  of  said  corporation  or  partnership 
assigned  and  conveyed  to  the  Standard  Oil  Company  of  the  proper 
State  on  the  terms  and  in  the  mode  herein  set  forth,  in  which  event 
the  trustees  shall  receive  stocks  of  the  Standard  Oil  Company  equal 
to  the  value  of  the  money,  property,  and  business  assigned,  to  be 
held  in  place  of  the  stocks  of  the  company  or  companies  assigning 
such  property. 

(10)  The  consideration  for  the  transfer  and  conveyance  of  the 
money,  property,  and  business  aforesaid  to  each  or  any  of  the 
Standard  Oil  Companies  shall  be  stock  of  the  respective  Standard 
Oil  Company  to  which  said  transfer  or  conveyance  is  made,  equal 
at  par  value  to  the  appraised  value  of  the  money,  property,  and 
business  so  transferred.  Said  stock  shall  be  delivered  to  the  trustees 
hereinafter  provided  for,  and  their  successors,  and  no  stock  of  any 
of  said  companies  shall  ever  be  issued  except  for  money,  property, 
or  business  equal  at  least  to  the  par  value  of  the  stock  so  issued, 
nor  shall  any  stock  be  issued  by  any  of  said  companies  for  any 
purpose  except  to  the  trustees  herein  provided  for,  to  be  held  sub- 
ject to  the  trusts  hereinafter  specified.  It  is  understood,  however, 
that  this  provision  is  not  intended  to  restrict  the  purchase,  sale, 
and  exchange  of  property  of  said  Standard  Oil  Companies  as  fully 
as  they  may  be  authorized  to  do  by  their  respective  charters, 
provided  only  that  no  stock  be  issued  therefor  except  to  said 
trustees. 

(n)  The  consideration  for  any  stock  delivered  to  said  trustees 
as  above  provided  for,  as  well  as  for  stocks  delivered  to  said  trustees 
by  persons  mentioned  or  included  in  class  third  of  this  agreement, 
shall  be  the  delivery  by  said  trustees,  to  the  persons  entitled  thereto, 
of  trust  certificates  hereinafter  provided  for,  equal  at  par  value 
to  the  par  value  of  the  stocks  of  the  said  Standard  Oil  companies 
so  received  by  said  trustees,  and  equal  to  the  appraised  value  of  the 
stocks  of  other  companies  or  partnerships  delivered  to  said  trustees. 
(The  said  appraised  value  shall  be  determined  in  a  manner  agreed 


Representative  Trusts  21 

upon  by  the  parties  in  interest  and  said  trustees.)  It  is  under- 
stood and  agreed,  however,  that  the  said  trustees  may,  with  any 
trust  funds  in  their  hands,  in  addition  to  the  mode  above  provided, 
purchase  the  bonds  and  stocks  of  other  companies  engaged  in 
business  similar  or  collateral  to  the  business  of  said  Standard  Oil 
companies,  on  such  terms  and  in  such  mode  as  they  may  deem  ad- 
visable, and  shall  hold  the  same  for  the  benefit  of  the  owners  of 
said  trust  certificates,  and  may  sell,  assign,  transfer,  and  pledge 
such  bonds  and  stocks  whenever  they  may  deem  it  advantageous 
to  said  trust  so  to  do. 

III.  The  trusts  upon  which  said  stocks  shall  be  held,  and  the 
number,  powers,  and  duties  of  said  trustees,  shall  be  as  follows: 

(1)  The  number  of  trustees  shall  be  nine. 

(2)  J.  D.  Rockefeller,  O.  H.  Payne,  and  Wm.  Rockefeller  are 
hereby  appointed  trustees,  to  hold  their  office  until  the  first  Wed- 
nesday of  April,  A.  D.  1885. 

(3)  J.  A.  Bostwick,  H.  M.  Flagler,  and  W.  G.  Warden  are  hereby 
appointed  trustees,  to  hold  their  office  until  the  first  Wednesday 
of  April,  a.  D.  1884. 

(4)  Chas.  Pratt,  Benj.  Brewster,  and  John  D.  Archbold,  are 
hereby  appointed  trustees,  to  hold  their  office  until  the  first  Wed- 
nesday of  April,  A.  D.  1883. 

(5)  Elections  for  trustees  to  succeed  those  herein  appointed  shall 
be  held  annually,  at  which  election  a  sufficient  number  of  trustees 
shall  be  elected  to  fill  all  vacancies  occurring  either  from  expiration 
of  the  term  of  office  of  trustee  or  from  any  other  cause.  All  trustees 
shall  be  elected  to  hold  their  office  for  three  years,  except  those 
elected  to  fill  a  vacancy  arising  from  any  cause  except  expiration 
of  term,  who  shall  be  elected  for  the  balance  of  the  term  of  the 
trustee  whose  place  they  are  elected  to  fill.  Every  trustee  shall 
hold  his  office  until  his  successor  is  elected. 

(6)  Trustees  shall  be  elected  by  ballot  by  the  owners  of  trust 
certificates  or  their  proxies.  At  all  meetings  the  owners  of  trust 
certificates  who  may  be  registered  as  such  on  the  books  of  the 
trustees  may  vote  in  person  or  by  proxy,  and  shall  have  one  vote 
for  each  and  every  share  of  trust  certificates  standing  in  their 
names;  but  no  such  owner  shall  be  entitled  to  vote  upon  any  share 
which  has  not  stood  in  his  name  thirty  days  prior  to  the  day  ap- 
pointed for  the  election.  The  transfer  books  may  be  closed  for 
thirty  days  immediately  preceding  the  annual  election.  A  major- 
ity of  the  shares  represented  at  such  election  shall  elect. 


22  Industrial  Combinations  and  Trusts 

(7)  The  annual  meeting  of  the  owners  of  said  trust  certificates 

for  the  election  of  trustees  and  for  other  business  shall  be  held  at 
the  office  of  the  trustees  in  the  city  of  New  York  on  the  first  Wed- 
nesday of  April  of  each  year,  unless  the  place  of  meeting  be  changed 
by  the  trustees,  and  said  meeting  may  be  adjourned  from  day  to 
day  until  its  business  is  completed.  Special  meetings  of  the  owners 
of  said  trust  certificates  may  be  called  by  the  majority  of  the 
trustees  at  such  times  and  places  as  they  may  appoint.  It  shall  also 
be  the  duty  of  the  trustees  to  call  a  special  meeting  of  holders  of 
trust  certificates  whenever  requested  to  do  so  by  a  petition  signed 
by  the  holders  of  10  per  cent  in  value  of  such  certificates.  The 
business  of  such  special  meetings  shall  be  confined  to  the  object 
specified  in  the  notice  given  therefor.  Notice  of  the  time  and  place 
of  all  meetings  of  the  owners  of  trust  certificates  shall  be  given  by 
personal  notice  as  far  as  possible  and  by  public  notice  in  one  of 
the  principal  newspapers  in  each  State  in  which  a  Standard  Oil 
Co.  exists  at  least  ten  days  before  such  meeting.  At  any  meeting, 
a  majority  in  the  value  of  the  holders  of  trust  certificates  represented 
consenting  thereto,  by-laws  may  be  made,  amended,  or  repealed 
relative  to  the  mode  of  election  of  trustees  and  other  business 
of  the  holders  of  trust  certificates;  provided,  however,  that  said  by- 
laws shall  be  in  conformity  with  this  agreement.  By-laws  may  also 
be  made,  amended,  and  repealed  at  any  meeting,  by  and  with 
the  consent  of  a  majority  in  value  of  the  holders'of  trust  certificates, 
which  alter  this  agreement  relative  to  the  number,  powers,  and 
duties  of  the  trustees  and  to  other  matters  tending  to  the  more  effi- 
cient accomplishment  of  the  objects  for  which  the  trust  is  created, 
provided  only  that  the  essential  intents  and  purposes  of  this  agree- 
ment be  not  thereby  changed. 

(8)  Whenever  a  vacancy  occurs  in  the  board  of  trustees  more 
than  sixty  days  prior  to  the  annual  meeting  for  the  election  of 
trustees,  it  shall  be  the  duty  of  the  remaining  trustees  to  call  a 
meeting  of  the  owners  of  the  Standard  Oil  Trust  certificates  for  the 
purpose  of  electing  a  trustee  or  trustees  to  fill  the  vacancy  or  vacan- 
cies. If  any  vacancy  occurs  in  the  board  of  trustees,  from  any 
cause,  within  sixty  days  of  the  date  of  the  annual  meeting  for  the 
election  of  trustees,  the  vacancy  may  be  filled  by  a  majority  of  the 
remaining  trustees,  or,  at  their  option,  may  remain  vacant  until 
the  annual  election. 

(9)  If,  for  any  reason,  at  any  time,  a  trustee  or  trustees  shall  be 
appointed  by  any  court  to  fill  any  vacancy  or  vacancies  in  said 


Representative  Trusts  23 

board  of  trustees,  the  trustee  or  trustees  so  appointed  shall  hold 
his  or  the  respective  office  or  offices  only  until  a  successor  or  succes- 
sors shall  be  elected  in  the  manner  above  provided  for. 

(10)  Whenever  any  change  shall  occur  in  the  board  of  trustees, 
the  legal  title  to  the  stock  and  other  property  held  in  trust  shall 
pass  to  and  vest  in  the  successors  of  said  trustees  without  any  formal 
transfer  thereof;  but  if  at  any  time  such  formal  transfer  shall  be 
deemed  necessary  or  advisable  it  shall  be  the  duty  of  the  board 
of  trustees  to  obtain  the  same,  and  it  shall  be  the  duty  of  any  re- 
tiring trustee,  or  the  administrator  or  executor  of  any  deceased 
trustee,  to  make  said  transfer. 

(n)  The  trustees  shall  prepare  certificates,  which  shall  show  the 
interest  of  each  beneficiary  in  said  trust,  and  deliver  them  to  the 
persons  properly  entitled  thereto.  They  shall  be  divided  into  shares 
of  the  par  value  of  $100  each,  and  shall  be  known  as  "Standard  Oil 
Trust  certificates,"  and  shall  be  issued  subject  to  all  the  terms  and 
conditions  of  this  agreement.  The  trustees  shall  have  power  to 
agree  upon  and  direct  the  form  and  contents  of  said  certificates, 
and  the  mode  in  which  they  shall  be  signed,  attested,  and  trans- 
ferred. The  certificates  shall  contain  an  express  stipulation  that 
the  holders  thereof  shall  be  bound  by  the  terms  of  this  agreement, 
and  by  the  by-laws  herein  provided  for. 

(12)  No  certificates  shall  be  issued  except  for  stocks  and  bonds 
held  in  trust,  as  herein  provided  for,  and  the  par  value  of  certificates 
issued  by  said  trustees  shall  be  equal  to  the  par  value  of  the  stocks 
of  said  Standard  Oil  Companies,  and  the  appraised  value  of  other 
bonds  and  stocks  held  in  trust.  The  various  bonds,  stocks,  and 
moneys  held  under  said  trust  shall  be  held  for  all  parties  in  interest 
jointly,  and  the  trust  certificates  so  issued  shall  be  the  evidence 
of  the  interest  held  by  the  several  parties  in  this  trust.  No  dupli- 
cate certificates  shall  be  issued  by  the  trustees  except  upon  sur- 
render of  the  original  certificate  or  certificates  for  cancellation, 
or  upon  satisfactory  proof  of  the  loss  thereof,  and  in  the  latter  case 
they  shall  require  a  sufficient  bond  of  indemnity. 

(13)  The  stocks  of  the  various  Standard  Oil  Companies  held 
in  trust  by  said  trustees  shall  not  be  sold,  assigned,  or  transferred 
by  said  trustees,  or  by  the  beneficiaries,  or  by  both  combined, 
so  long  as  the  trust  endures.  The  stocks  and  bonds  of  other  cor- 
porations held  by  said  trustees  may  be  by  them  exchanged  or  sold 
and  the  proceeds  thereof  distributed  pro  rata  to  the  holders  of 
trust  certificates,  or  said  proceeds  may  be  held  and  reinvested 


24  Industrial  Combinations  and  Trusts 

by  said  trustees  for  the  purposes  and  uses  of  the  trust;  provided, 
however,  that  said  trustees  may  from  time  to  time  assign  such 
shares  of  stock  of  said  Standard  Oil  Companies  as  may  be  necessary 
to  qualify  any  person  or  persons  chosen  or  to  be  chosen  as  directors 
and  officers  of  any  of  said  Standard  Oil  Companies. 

(14)  It  shall  be  the  duty  of  said  trustees  to  receive  and  safely 
to  keep  all  interest  and  dividends  declared  and  paid  upon  any  of  the 
said  bonds,  stocks,  and  moneys  held  by  them  in  trust,  and  to  dis- 
tribute all  moneys  received  from  such  sources  or  from  sales  of  trust 
property  or  otherwise  by  declaring  and  paying  dividends  upon  the 
Standard  Trust  certificates  as  funds  accumulate,  which  in  their 
judgment  are  not  needed  for  the  uses  and  expenses  of  said  trust. 
The  trustees  shall,  however,  keep  separate  accounts  and  receipts 
from  interest  and  dividends,  and  of  receipts  from  sales  or  transfers 
of  trust  property,  and  in  making  any  distribution  of  trust  funds, 
in  which  moneys  derived  from  sales  or  transfers  shall  be  included, 
shall  render  the  holders  of  trust  certificates  a  statement  showing 
what  amount  of  the  fund  distributed  has  been  derived  from  such 
sales  or  transfers.  The  said  trustees  may  be  also  authorized  and 
empowered  by  a  vote  of  a  majority  in  value  of  holders  of  trust 
certificates,  whenever  stocks  or  bonds  have  accumulated  in  their 
hands  from  money  purchases  thereof,  or  the  stocks  or  bonds  held 
by  them  have  increased  in  value,  or  stock  dividends  shall  have  been 
declared  by  any  of  the  companies  whose  stocks  are  held  by  said 
trustees,  or  whenever  from  any  such  cause  it  is  deemed  advisable 
so  to  do,  to  increase  the  amount  of  trust  certificates  to  the  extent 
of  such  increase  or  accumulation  of  values  and  to  divide  the  same 
among  the  persons  then  owning  trust  certificates  pro  rata. 

(15)  It  shall  be  the  duty  of  said  trustees  to  exercise  general 
supervision  over  the  affairs  of  said  several  Standard  Oil  Companies, 
and  as  far  as  practicable  over  the  other  companies  or  partnerships, 
any  portion  of  whose  stock  is  held  in  said  trust.  It  shall  be  their 
duty  as  stockholders  of  said  companies  to  elect  as  directors  and 
officers  thereof  faithful  and  competent  men.  They  may  elect  them- 
selves to  such  positions  when  they  see  fit  so  to  do,  and  shall  en- 
deavor to  have  the  affairs  of  said  companies  managed  and  directed 
in  the  manner  they  may  deem  most  conducive  to  the  best  interests 
of  the  holders  of  said  trust  certificates. 

(16)  All  the  powers  of  the  trustees  may  be  exercised  by  a  major- 
ity of  their  number.  They  may  appoint  from  their  own  number  an 
executive  and  other  committees.     A  majority  of  each  committee 


Representative  Trusts  25 

shall  exercise  all  the  powers  which  the  trustees  may  confer  upon  such 
committee. 

(17)  The  trustees  may  employ  and  pay  all  such  agents  and  at- 
torneys as  they  may  deem  necessary  in  the  management  of  said 
trust. 

(18)  Each  trustee  shall  be  entitled  to  a  salary  for  his  services 
not  exceeding  twenty-five  thousand  dollars  per  annum,  except  the 
president  of  the  board,  who  may  be  voted  a  salary  not  exceeding 
thirty  thousand  dollars  per  annum,  which  salaries  shall  be  fixed 
by  said  board  of  trustees.  All  salaries  and  expenses  connected  with 
or  growing  out  of  the  trust  shall  be  paid  by  the  trustees  from  the 
trust  fund. 

(19)  The  board  of  trustees  shall  have  its  principal  office  in  the 
city  of  New  York,  unless  changed  by  vote  of  the  trustees,  at  which 
office,  or  in  some  place  of  safe  deposit  in  said  city,  the  bonds  and 
stocks  shall  be  kept.  The  trustees  shall  have  power  to  adopt  rules 
and  regulations  pertaining  to  the  meetings  of  the  board,  the  election 
of  officers,  and  the  management  of  the  trust. 

(20)  The  trustees  shall  render  at  each  annual  meeting  a  state- 
ment of  the  affairs  of  the  trust.  If  a  termination  of  the  trust  be 
agreed  upon,  as  hereinafter  provided,  or  within  a  reasonable  time 
prior  to  its  termination  by  lapse  of  time,  the  trustees  shall  furnish 
to  the  holders  of  the  trust  certificates  a  true  and  perfect  inventory 
and  appraisement  of  all  stocks  and  other  property  held  in  trust, 
and  a  statement  of  the  financial  affairs  of  the  various  companies 
whose  stocks  are  held  in  trust. 

(21)  The  trust  shall  continue  during  the  lives  of  the  survivors 
and  survivor  of  the  trustees  in  this  agreement  named,  and  for 
twenty-one  years  thereafter;  provided,  however,  that  if  at  any  time 
after  the  expiration  of  ten  years  two-thirds  of  all  the  holders  in 
value,  or  if  after  the  expiration  of  one  year  90  per  cent  of  all  the 
holders  in  value  of  trust  certificates  shall,  at  a  meeting  of  holders 
of  trust  certificates  called  for  that  purpose,  vote  to  terminate  this 
trust  at  some  time  to  be  by  them  then  and  there  fixed,  the  said 
trust  shall  terminate  at  the  date  so  fixed.  If  the  holders  of  trust 
certificates  shall  vote  to  terminate  the  trust  as  aforesaid,  they  may, 
at  the  same  meeting,  or  at  a  subsequent  meeting  called  for  that 
purpose,  decide  by  vote  of  two-thirds  in  value  of  their  number  the 
mode  in  which  the  affairs  of  the  trust  shall  be  wound  up,  and 
whether  the  trust  property  shall  be  distributed  or  whether  part, 
and  if  so,  what  part  shall  be  divided  and  what  part  sold,  and  whether 


26  Industrial  Combinations  and  Trusts 

such  sales  shall  be  public  or  private.  The  trustees,  who  shall  con- 
tinue to  hold  their  offices  for  that  purpose,  shall  make  the  dis- 
tribution in  the  mode  directed,  or,  if  no  mode  be  agreed  upon,  by 
two-thirds  in  value  as  aforesaid,  the  trustees  shall  make  distribution 
of  the  trust  property  according  to  law.  But  said  distribution, 
however  made,  and  whether  it  be  of  property,  or  values,  or  of  both, 
shall  be  just  and  equitable,  and  such  as  to  insure  to  each  owner  of 
a  trust  certificate  his  due  proportion  of  the  trust  property  or  the 
value  thereof. 

(22)  If  the  trust  shall  be  terminated  by  the  expiration  of  the 
time  for  which  it  is  created,  the  distribution  of  the  trust  property 
shall  be  directed  and  made  in  the  mode  above  provided. 

(23)  This  agreement,  together  with  the  registry  of  certificates, 
books  of  accounts,  and  other  books  and  papers  connected  with  the 
business  of  said  trust,  shall  be  safely  kept  at  the  principal  office  of 
said  trustees. 

(Signatures.) 

supplemental  agreement 

Whereas  in  and  by  an  agreement  dated  January  2,  1882,  and 
known  as  the  Standard  Trust  agreement,  the  parties  thereto  did 
mutually  covenant  and  agree,  inter  alia,  as  follows,  to  wit:  That 
corporations  to  be  knowm  as  Standard  Oil  Companies  of  various 
States  should  be  formed,  and  that  all  of  the  property,  real  and  per- 
sonal, assets,  and  business  of  each  and  all  of  the  corporations  and 
limited  partnerships  mentioned  or  embraced  in  class  first  of  said 
agreement  should  be  transferred  and  vested  in  the  said  several 
Standard  Oil  Companies;  that  all  of  the  property,  assets,  and  busi- 
ness in  or  of  each  particular  State  should  be  transferred  to  and 
vested  in  the  Standard  Oil  Company  of  that  particular  State,  and 
the  directors  and  managers  of  each  and  all  of  the  several  corpora- 
tions and  associations  mentioned  in  class  first  were  authorized 
and  directed  to  sell,  assign,  transfer,  and  convey,  and  make  over 
to  the  Standard  Oil  Company  or  Companies  of  the  proper  State 
or  States,  as  soon  as  said  corporations  were  organized  and  ready 
to  receive  the  same,  all  the  property,  real  and  personal,  assets  and 
business  of  said  corporations  or  associations;  and  whereas  it  is  not 
deemed  expedient  that  all  of  the  companies  and  associations 
mentioned  should  transfer  their  property  to  the  said  Standard 
Oil  Companies  at  the  present  time,  and  in  case  of  some  companies 
and  associations  it  may  never  be  deemed  expedient  that  the  said 


Representative  Trusts  27 

transfer  should  be  made,  and  said  companies  and  associations 
go  out  of  existence;  and  whereas  it  is  deemed  advisable  that  a  dis- 
cretionary power  should  be  vested  in  the  trustees  as  to  when  such 
transfer  or  transfers  should  take  place,  if  at  all:  Now,  it  is  hereby 
mutually  agreed  between  the  parties  to  the  said  trust  agreement, 
and  as  supplementary  thereto,  that  the  trustees  named  in  the 
said  agreement  and  their  successors  shall  have  the  power  and 
authority  to  decide  what  companies  shall  convey  their  property 
as  in  said  agreement  contemplated,  and  when  the  said  sales  and 
transfers  shall  take  place,  if  at  all,  and  until  said  trustees  shall  so 
decide,  each  of  said  companies  shall  remain  in  existence,  and  retain 
its  property  and  business,  and  the  trustees  shall  hold  the  stocks 
thereof  in  trust,  as  in  said  agreement  provided.  In  the  exercise 
of  said  discretion  the  trustees  shall  act  by  a  majority  of  their  num- 
ber as  provided  in  said  trust  agreement.  All  portions  of  said  trust 
agreement  relating  to  this  subject  shall  be  considered  so  changed 
as  to  be  in  harmony  with  this  supplemental  agreement. 

In  witness  whereof,  the  said  parties  have  subscribed  this  agree- 
ment this  4th  day  of  January,  1882. 

(Duly  signed  by  the  same  parties.) 

Exhibit  3 

DEED 
THE  SUGAR  REFINERIES  COMPANY  1 

The  undersigned,  namely: 

Havemeyers  &  Elder,  The  DcCastro  2  and  Donner  Sugar  Re- 
fining Company,  F.  O.  Matthiessen  &  Wiechers'  Sugar  Refining 
Company,  Havemeyer  Sugar  Refining  Company,  Brooklyn  Sugar 
Refining  Company,  the  firm  of  Dick  &  Meyer,  the  firm  of  Moller, 
Sierck  &  Company,  North  River  Sugar  Refining  Company,  the 
firm  of  Oxnard  Brothers,  the  Standard  Sugar  Refinery,  the  Bay 
State  Sugar  Refinery,  the  Boston  Sugar  Refining  Company,  the 
Continental  Sugar  Refinery  and  the  Revere  Sugar  Refinery,  for 
the  purpose  of  forming  the  board  hereinafter  provided  for  and  for 
other  purposes  hereinafter  set  forth,  enter  into  the  following  agree- 
ment: 

1  Report  of  the  Senate  Committee  on  General  Laws  on  Investigation  Relative 
to  Trusts.    N.  Y.  Sen.  Doc.  No.  50,  1888,  pp.  644-651. 

2  Thus  in  original. — Ed. 


28  Industrial  Combinations  and  Trusts 


Name 

The  board  herein  provided  for  shall  be  designated  by  the  name 
of  The  Sugar  Refineries  Company. 

Objects 

The  objects  of  this  agreement  are: 

1.  To  promote  economy  of  administration  and  to  reduce  the 
cost  of  refining,  thus  enabling  the  price  of  sugar  to  be  kept  as  low 
as  is  consistent  with  a  reasonable  profit. 

2.  To  give  to  each  refinery  the  benefit  of  all  appliances  and  proc- 
esses known  or  used  by  the  others,  and  useful  to  improve  the 
quality  and  diminish  the  cost  of  refined  sugar. 

3.  To  furnish  protection  against  unlawful  combinations  of  labor. 

4.  To  protect  against  inducements  to  lower  the  standard  of 
refined  sugar. 

5.  Generally  to  promote  the  interests  of  the  parties  hereto  in 
all  lawful  and  suitable  ways. 

Board 

The  parties  hereto  who  are  not  corporations  shall  become  such 
before  this  deed  takes  effect. 

Each  corporation  subscribing  hereto  agrees  and  the  parties  hereto 
who  are  not  corporations  agree  as  to  the  corporations  which  they 
are  to  form,  that  all  the  shares  of  the  capital  stock  of  all  such  cor- 
porations shall  be  transferred  to  a  board  consisting  of  eleven  per- 
sons, which  may  be  increased  to  thirteen  by  vote  of  the  majority 
of  the  members  of  the  entire  board,  the  two  additional  members  to 
belong  respectively  to  the  first  and  second  classes  hereinafter  pro- 
vided for. 

Any  member  of  the  board  may  be  removed  by  vote  of  two- 
thirds  of  the  members  of  the  entire  board,  in  case  of  incapacity  or 
neglect,  or  refusal  to  serve. 

Any  member  may  resign  by  filing  written  notice  of  his  resig- 
nation with  the  secretary  of  said  board. 

Vacancies  during  the  term  of  office  of  members  shall  be  filled 
by  appointment,  by  vote  of  the  majority  of  the  members  of  the 
entire  board. 

A  member  appointed  to  fill  a  vacancy  shall  hold  office  until 
the  expiration  of  the  term  of  the  member  in  whose  place  he  is 


Representative  Trusts  29 

appointed,  which  new  appointee  shall  succeed  to  all  the  rights, 
duties  and  obligations  of  his  predecessor  under  this  deed. 

Vacancies  by  expiration  of  office  shall  be  filled  at  the  annual 
meeting  of  the  holders  of  certificates  herein  provided  for,  or  at  such 
other  times  as  shall  be  prescribed  by  the  board. 

Such  annual  meetings  shall  be  held  in  the  city  of  New  York 
in  the  month  of  June,  and  notice  shall  be  given  to  each  certificate 
holder  of  record,  of  every  meeting  of  certificate  holders,  by  mailing 
to  him  at  least  seven  days  before  said  meeting,  a  notice  of  the  time, 
place  and  objects  of  such  meeting.  Holders  of  certificates  shall 
vote  according  to  the  number  of  shares  for  which  they  hold  certif- 
icates.   They  may  vote  by  proxy. 

The  board  may  make  by-laws.  All  arrangements  for  meetings, 
elections,  and  all  details  not  herein  specifically  provided  for,  shall 
be  made  by  the  board.  A  member  of  the  board  may  act  by  proxy 
for  any  other  member  with  like  effect  as  if  he  were  present  and  act- 
ing. 

A  majority  of  the  members  of  the  board  shall  constitute  a  quorum 
for  the  transaction  of  business.  The  action  of  a  board  meeting, 
by  a  majority  vote  of  such  meeting,  shall  have  the  same  effect  as 
the  unanimous  action  of  the  board,  except  as  herein  otherwise 
provided,  and  that  to  authorize  the  appropriation  of  money,  bonds 
or  shares,  shall  require  the  assent  either  written  or  expressed  by  vote 
at  a  board  meeting,  of  at  least  a  majority  of  the  members  of  the 
entire  board. 

No  member  of  the  board  shall,  during  the  time  that  he  holds 
office,  buy  or  sell  sugar,  or  be  interested  directly  or  indirectly  in 
the  purchase  or  sale  of  sugar,  whether  for  the  purpose  of  speculation 
or  otherwise,  without  a  vote  of  a  majority  of  the  members  of  the 
entire  board.  For  any  violation  of  this  provision,  he  may  be  re- 
moved as  a  member  of  the  board  and  shall  be  liable  to  account 
for  profits  which  shall  be  realized  by  him  to  the  board  for  the  pro 
rata  benefit  of  the  certificate  holders. 

As  it  is  desirable  that  the  board  shall  consist  of  members  who 
are  largely  interested  in  the  properties  and  the  business  contem- 
plated it  is  hereby  agreed  that  oil l  members  of  the  board  shall  be 
free  to  join  in  or  become  parties  to  agreements  and  transactions 
which  the  several  boards  of  directors,  hereinafter  referred  to,  or 
this  board,  may  arrange,  to  the  same  extent  and  in  the  same  manner, 
and  with  the  like  effect,  as  if  they  were  not  members  of  the  board. 
1  Thus  in  the  original. — Ed. 


30  Industrial  Combinations  and  Trusts 

The  said  board  may  transfer,  from  time  to  time,  to  such  persons 
as  it  may  be  desired  to  constitute  trustees  or  directors  or  other 
officers  of  corporations,  so  many  of  the  shares  as  may  be  necessary 
for  that  purpose,  to  be  held  by  them  subject  to  the  provisions  of 
this  instrument,  such  transfers  may  be  executed  by  the  president 
and  treasurer  of  the  board,  in  behalf  of  and  as  attorneys  of  the  board, 
for  that  purpose  and  to  be  retransferred  when  so  requested  by  the 
board. 

The  first  board  shall  consist  of  the  persons  hereinafter  mentioned. 
They  shall  hold  office  as  follows,  and  until  their  successors  shall  be 
elected: 

Members  of  the  First  Class. 

Harry  0.  Havemeyer,  F.  0.  Matthiessen,  John  E.  Searles,  Jr., 
Julius  A.  Stursberg,  to  hold  office  seven  years. 

Members  of  the  Second  Class. 
Theodore  A.  Havemeyer,  Joseph  B.  Thomas,  John  Jurgensen; 
Hector  C.  Havemeyer  withdrew  and  Mr.  Parsons  substituted,  to 
hold  office  five  years. 

Members  of  the  Third  Class. 

Charles  H.  Senff,  William  Dick,  to  hold  office  three  years. 

At  the  expiration  of  the  terms  of  the  third  class,  and  of  each 
successive  class,  their  successors,  as  members  of  such  class,  shall 
be  elected  for  seven  years. 

Officers. 

The  board  shall  appoint  from  its  members  a  president,  vice- 
president  and  treasurer,  and  it  shall  also  appoint  a  secretary,  who 
may  or  may  not  be  a  member  of  the  board.  The  board  may,  from 
time  to  time,  create  other  offices  and  appoint  the  persons  to  fill 
them.  It  may  appoint  committees.  It  shall  designate  the  duties 
and  prescribe  the  powers  of  the  several  officers  and  committees. 

Plan. 

The  several  corporations,  parties  to  this  agreement  shall  main- 
tain their  separate  organization,  and  each  shall  carry  on  and  con- 
duct its  own  business. 

The  capital  stock  of  each  corporation  shall  be  transferred  to  the 
board,  and  in  lieu  of  the  same,  certificates  not  exceeding  fifty  mil- 
lions of  dollars,  divided  into  five  hundred  thousand  shares,  each  of 


Representative  Trusts  31 

one  hundred  dollars,  shall  be  issued  by  the  board  and  distributed 
as  hereinafter  provided. 

The  certificate  shall  be  in  the  following  form: 

No Shares. 

Shares  One  Hundred  Dollars  Each. 
The  Sugar  Refineries  Company. 

This  is  to  certify  that is  entitled  to 

shares  of  the  Sugar  Refineries  Company. 

This  certificate  is  issued  under  and  subject  to  the  provisions  of  a 
deed  dated  the  sixteenth  day  of  August,  one  thousand  eight  hun- 
dred and  eighty-seven. 

The  shares  represented  by  this  certificate  are  transferable  by 
the  holder  and  his  personal  representatives  in  person  or  by  attorney, 
upon  the  books  of  the  board,  and  not  otherwise,  and  only  upon  the 
surrender  of  this  certificate. 

They  entitle  the  holder  to  the  rights  and  are  subject  to  the  pro- 
visions mentioned  in  the  deed. 

The  interest  of  the  holder  is  in  the  proportion  of  the  number 
of  shares  represented  by  this  certificate  to  the  entire  number  of 
shares  outstanding.  The  total  amount  represented  by  outstanding 
certificates,  and  the  terms  of  the  deed  may  be  changed  from  time 
to  time  by  a  majority  in  interest  as  therein  provided. 

In  witness  whereof  the  board  has  caused  this  certificate  to  be 
signed  by  its  president  and  treasurer,  and  the  seal  of 

[l.  s.]       the  board  to  be  affixed  hereto,  the day  of ,  one 

thousand  eight  hundred  and  eighty 

For  value  received do  hereby  assign,  transfer 

and  set  over  unto shares  of  those  represented  by 

the  within  certificate,  and do  hereby  constitute 

and  appoint attorney,  irrevocable,  for 

and  in name  and  stead,  to  transfer  the  said  shares 

upon  the  books  kept  for  the  purpose  under  the  direction  of  the 
within  board. 

The  assignee  by  accepting  this  transfer  assents  to  the  terms  of 
the  deed  referred  to  in  the  certificate  as  the  same  shall  be  changed 
from  time  to  time. 

Witness  hand  and  seal  this day  of , 

one  thousand  eight  hundred  and  eighty. 


32  Industrial  Combinations  and  Trusts 


Title. 

The  shares  of  the  capital  stock  of  the  several  corporations  to  be 
transferred  to  the  board  as  herein  provided  shall  be  transferred  to 
the  names  of  the  members  of  the  board  as  trustees,  to  be  held  by 
them  and  by  their  successors  as  members  of  the  board  strictly  as 
joint  tenants. 

By  the  death,  resignation  or  removal  of  any  member  of  the  board 
the  whole  title  shall  remain  in  the  others.  All  members  ceasing 
to  be  such  shall  execute  such  instruments  as  may  be  necessary,  if 
any,  to  keep  the  title  vested  in  the  persons  who  from  time  to  time 
shall  be  members  of  the  board. 

The  Board  shall  hold  the  stock  transferred  to  it  with  all  the  rights 
and  powers  incident  to  stockholders  in  the  several  corporations 
and  subject  only  to  the  purposes  set  forth  in  this  deed. 

Division  of  Interest. 

The  several  corporations  shall  be  entitled  to  the  shares  in  the 
following  proportions  of  the  fifty  millions  of  dollars,  viz. : 

Havemeyer  &  Elder. 

DeCastro  &  Donner  Sugar  Refining  Company. 

F.  O.  Matthiessen  &  Weichers  Sugar  Refining  Company. 

The  Havemeyer  Sugar  Refining  Company. 

The  Brooklyn  Sugar  Refining  Company. 

Dick  &  Meyer. 

Moller,  Sierck  &  Company. 

Oxnard  Brothers. 

North  River  Sugar  Refining  Company. 

Standard  Sugar  Refinery. 

Boston  Sugar  Refining  Company. 

Bay  State  Sugar  Refinery. 

Continental  Sugar  Refinery. 

Revere  Sugar  Refinery. 

Each  refinery  and  the  corporation  to  which  it  belongs  shall  be 
freed  from  liability  and  indebtedness  by  the  parties  interested  in 
it;  or  such  parties,  if  the  board  shall  approve,  may  provide  in  cash 
for  such  indebtedness  or  liability,  leaving  the  same  to  stand  at  the 
pleasure  of  the  board;  except  that  the  employe's  contracts  shown 
in  the  schedules  hereto  annexed,  and  the  contracts  with  Havemeyer 
and  Elder,  the  F.  O.  Matthiessen  and  Weichers  Sugar  Refining 


Representative  Trusts  33 

Company  and  the  Bay  State  Sugar  Refinery  pending  for  improve- 
ments and  enlargements,  shall  continue  as  liabilities. 

Annexed  hereto  are  schedules  in  general  terms  of  the  properties 
of  the  several  refineries.  The  properties  are  guaranteed  to  cor- 
respond with  the  schedules  by  the  parties  interested  therein,  who 
are  to  make  good  any  deficiency.  On  the  complete  execution  of 
this  agreement  each  of  the  said  parties  shall  make  a  full  inventory 
of  the  property  not  embraced  in  such  schedules  and  useful  for  the 
conduct  of  the  business,  on  hand  or  contracted  for,  including  raw 
and  refined  sugars,  molasses,  sugars  in  process,  syrups,  bone  black, 
fuel  barrels,  packages,  charcoal  and  other  supplies,  and  such  in- 
ventory is  to  be  examined  and  the  articles  appraised  at  their  present 
cash  value  (except  as  to  sugar  and  molasses  to  arrive  which  are 
to  be  appraised  at  their  market  value  on  arrival)  by  a  committee 
of  five  persons  as  follows: 

Theodore  A.  Havemeyer,  F.  O.  Matthiessen,  Julius  A.  Sturs- 
berg,  John  E.  Searles,  Jr.,  and  Joseph  B.  Thomas. 

The  value  of  such  property  as  fixed  by  four-fifths  of  the  ap- 
praisers shall  be  paid  for  in  cash  by  the  said  board  to  the  treasurer 
of  each  corporation. 

Bone  black  may  at  the  option  of  the  board  be  paid  for  in  cash  or 
in  the  bonds  hereinafter  provided  for,  or  in  certificates  at  a  rate 
for  bonds  or  certificates  to  be  fixed  by  a  vote  of  a  majority  of  the 
members  of  the  entire  board. 

The  property  shall  remain  with  the  refinery  where  it  is,  to  be 
used  by  it,  except  as  such  refinery  shall  make  a  different  disposition 
of  it. 

In  consideration  of  the  transfers  of  their  stock  to  the  board  the 

said  board  shall  also  pay  to  Havemeyers  &  Elder  the  sum  of 

to  the  F.  0.  Matthiessen  &  Weichers  Sugar 

Refining  Company,  the  sum  of and  to  the 

Bay  State  Sugar  Refining  Company  the  sum  of on 

account  of  payments  already  made  on  pending  contracts  for  im- 
provements and  enlargements. 

Additional  shares  to  the  amount  of  $400,000,  less  fifteen  per 
cent,  to  be  left  with  the  board  as  hereinafter  provided,  shall  be  re- 
ceived by  Moller,  Sierck  &  Co.,  for  improvements  and  enlargements 
of  capacity  of  their  refinery  now  in  progress,  when  said  improve- 
ments are  completed,  and  the  increased  capacity  demonstrated. 

The  shares  assigned  to  the  several  refineries  shall  be  distributed 
by  them  to  and  among  the  parties  interested  therein. 


34  Industrial  Combinations  and  Trusts 

Each  holder  of  stock  in  a  refinery  company  shall  be  entitled  to  so 
many  of  the  shares  allotted  to  such  refinery  as  shall  be  in  proportion 
of  his  stock  to  the  capital  of  his  company. 

Shares  for  stockholders  of  any  refinery  company  who  shall  not 
surrender  their  stock,  may,  under  the  direction  of  the  board,  be 
deposited  for  their  account  with  the  right  to  receive  the  same  upon 
the  surrender  of  their  stock. 

Of  the  shares  allotted  to  the  several  refineries  they  shall  leave 
fifteen  per  cent  with  the  board,  and  those  shares  and  any  shares 
not  allotted  of  the  fifty  millions  of  dollars,  except  as  herein  other- 
wise provided,  shall  be  subject  to  be  disposed  of  by  the  board,  either 
for  the  acquisition  of  other  refineries  to  become  parties  to  this  deed, 
payment  for  additional  capacity,  or  by  appropriations  to  the  several 
refineries. 

But  in  no  case  shall  any  appropriation  be  made  to  or  any  action 
be  taken'by  any  corporation  without  the  approval  of  its  board  of 
directors,  and  no  action  shall  be  taken  by  the  board  which  shall 
create  liability  by  it  or  by  its  members. 

Profits. 

The  profits  arising  from  the  business  of  each  corporation  shall 
be  paid  over  by  it  to  the  board  hereby  created,  and  the  aggregate 
of  said  profits,  or  such  amount  as  may  be  designated  for  dividends 
shall  be  proportionately  distributed  by  said  board,  at  such  times 
as  it  may  determine,  to  the  holders  of  the  certificates  issued  by  said 
board  for  capital  stock  as  hereinbefore  provided. 

Fiscal  Arrangements. 

The  funds  necessary  to  enable  the  said  board  to  make  the  pay- 
ments herein  provided  to  be  made  by  it,  may  be  raised  by  mortgage 
to  be  made  by  the  corporations  or  either,  any  or  all  of  them  on 
their  property,  and  by  such  other  means  as  shall  be  satisfactory 
to  such  board. 

In  case  any  mortgage  shall  be  laid  on  the  property  of  any  cor- 
poration by  its  directors  or  stockholders  the  holders  of  certificates 
shall,  within  a  time  to  be  fixed  by  said  board,  have  the  right  at 
such  uniform  rates  as  said  board  shall  arrange,  to  have  the  bonds, 
certificates  or  other  evidence  of  debts  or  interest  in  proportion  to 
their  respective  holdings.  Any  parts  which  shall  not  be  thus  taken 
may  be  disposed  of  by  said  board. 


Representative  Trusts  35 


Changes. 

The  number  of  shares  and  the  total  amount  thereof,  issuable 
by  said  board,  may,  from  time  to  time,  be  increased  or  diminished 
by  deed  executed  by  a  majority  in, value  of  the  certificate  holders. 

The  provisions  of  this  deed  may  from  time  to  time  be  changed 
by  deed  executed  by  not  less  than  a  majority  in  interest  of  the 
certificate  holders,  provided  no  change  shall  be  made  which  shall 
discriminate  to  the  disadvantage  of  the  certificate  holders  as  be- 
tween themselves. 

Acquisition  of  Other  Refineries. 

The  capital  stock  of  other  sugar  refining  companies  and  of  com- 
panies whose  business  relates  directly  or  indirectly  to  sugar  re- 
fining (in  every  instance  to  be  incorporated)  may  be  transferred 
to  said  board  with  the  consent  of  a  majority  thereof  at  valuations 
and  upon  terms  satisfactory  to  it  to  be  held  by  said  board  under 
and  subject  to  all  the  terms  of  this  deed,  and  certificates  may  be 
issued  therefor  by  said  board  and  may  be  sold  by  it  to  provide  funds 
for  such  purchase  or  purchases,  and  any  such  corporation  or  cor- 
porations shall  thereupon  become  a  party  to  this  deed  upon  caus- 
ing the  same  to  be  duly  signed  in  its  behalf. 

Custody  of  Deed. 

This  deed,  when  executed  by  the  parties  hereto,  shall  be  delivered 
to  the  president  of  the  board,  who  shall  have  the  sole  and  independ- 
ent custody  and  control  of  the  same,  and  the  said  deed  shall  not 
be  shown  or  delivered  to  any  person  or  persons  whatsoever  except 
by  the  express  direction  and  order  of  the  board. 

A  copy  of  the  said  deed  shall  be  lodged  with  a  member  of  the 
board  residing  in  Boston,  Massachusetts,  which  shall  be  held  by 
him  under  the  same  conditions  and  in  the  same  manner  as  the 
original  deed. 

In  witness  whereof  the  parties  have  hereto  set  their  seals 
and  affixed  their  names,  these  presents  to  become  bind- 
ing when  completely  executed  by  all  the  parties,  and  to 
take  effect  from  October  1st,  1887. 
Dated  August  16th,  1887. 
(Signatures.) 


36  Industrial  Combinations  and  Trusts 

Exhibit  4 
distillers'  and  cattle  feeders'  trust  x 

Whereas  it  is  designed  to  form  a  trust  to  be  known  as  the  Dis- 
tillers and  Cattle  Feeders'  Trust,  for  the  purpose  of  securing  in- 
telligent co-operation  in  the  business  of  distilling  spirits  from  grain 
or  other  material,  malting,  and  the  feeding  of  live-stock,  and  the 
sale  of  the  products  thereof  in  home  and  foreign  markets,  and  to  do 
all  other  business  incidental  to  those  enumerated:  Therefore, 

It  is  mutually  agreed  by  all  who  may  sign  this  agreement,  or 
become  at  any  time  the  holders  of  the  certificates  of  trust  herein 
provided  for,  as  follows: 

First.  The  trust  herein  created  shall  be  vested  in  nine  trustees. 

Second.  William  N.  Hobart,  George  K.  Duckworth,  Lewis  H. 
Green,  Peter  J.  Hennessy,  Alfred  Bevis,  Joseph  B.  Greenhut, 
Warren  H.  Corning,  Adolph  Woolner,  and  John  H.  Francis  are 
hereby  appointed  trustees,  to  hold  their  office  until  the  1st  day  of 
May,  A.  D.  1888,  or  until  their  successors  are  elected  and  qualified. 

Third.  The  trustees  shall  prepare  certificates  which  shall  show 
the  interest  of  each  beneficiary  in  said  trust,  and  deliver  them  to 
the  persons  entitled  thereto.  The  certificates  shall  be  divided  into 
shares  of  the  par  value  of  $100  dollars  2  each,  and  shall  be  known 
as  "The  Distillers  and  Cattle  Feeders'  Trust  Certificates."  The 
trustees  shall  have  full  power  to  agree  upon  and  direct  the  form 
and  contents  of  said  certificates  and  the  mode  in  which  they  shall 
be  executed,  attested,  and  transferred.  The  certificates  shall  con- 
tain an  express  stipulation  that  the  holders  thereof  shall  be  bound 
by  the  terms  of  this  agreement  and  by  the  by-laws  herein  provided 
for. 

Fourth.  No  certificates  shall  be  issued  except  for  stock,  as  here- 
inafter provided,  and  the  par  value  of  the  certificates  issued  shall 
represent  as  nearly  as  possible  the  actual  cash  value  of  the  stock 
held  by  the  trustees  in  trust.  The  certificates  shall  be  the  best 
evidence  of  the  amount  of  interest  of  the  beneficiaries  in  the  trust. 
No  duplicate  shall  be  issued  by  the  trustees  except  upon  surrender 
of  the  original  certificate  and  cancellation  of  the  same,  or  upon 
satisfactory  proof  of  the  loss  thereof,  and  the  giving  of  a  satis- 
factory bond  of  indemnity. 

1  House  Report,  No.  4165,  50th  Congress,  2nd  Sess.,  pp.  57-61. 

2  Thus  in  original. — Ed. 


Representative  Trusts  37 

Fifth.  Each  subscriber  hereto  agrees  to  assign  and  transfer 
absolutely  to  said  trustees  the  number  of  shares  of  capital  stock 
of  the  particular  corporation  or  corporations  indicated  in  article 
six  of  this  agreement,  in  consideration  of  which  said  trustees  do 
hereby  agree  to  execute  and  deliver  to  each  subscriber  trust  certif- 
icates, as  above  specified,  for  the  number  of  shares,  which  certifi- 
cates, at  the  par  value  thereof,  shall  represent  the  cash  value  of 
the  stock  so  delivered.  The  value  of  the  capital  of  any  corporation 
whose  stock  shall  be  assigned  to  said  trustees  shall  be  first 
agreed  upon  between  said  trustees  and  the  stockholders  will- 
ing to  transfer  the  same,  and  after  it  is  agreed  upon  there 
shall  be  no  discrimination  in  the  purchase  price  as  between 
stockholders  of  the  same  corporation  transferring  their  shares  at 
the  same  time. 

Sixth.  This  agreement  shall  take  effect  as  soon  as  those  holding 
a  majority  of  stock  in  the  following  corporations,  formed  or  to  be 
formed,  to  wit:  The  Storrs  Distilling  Company  by  the  Mill  Creek 
Distilling  Company;  The  Maddux  Hobart  Company  by  Maddux, 
Hobart  &  Co. ;  the  White  Mills  Distilling  Company  by  George  K. 
Duckworth;  the  Great  Western  Distilling  Company;  Monarch 
Distilling  Company;  Woolner  Brothers'  Distilling  Company; 
Peoria  Distilling  Company;  Birmingham  Distilling  Company  by 
Chicago  Distilling  Company;  Missouri  Distilling  Company  by 
Mound  City  Distilling  Company,  have  transferred  the  same  to 
said  trustees.  Thereafter  the  said  trustees  and  their  successors 
shall  have  power  to  purchase  other  stocks  of  the  same  companies 
or  of  companies  organized  for  conducting  the  same  business,  or 
any  of  the  businesses  hereinbefore  specified,  and  may  issue  there- 
for certificates  of  trust  equal  at  par  value  to  the  cash  value  of  the 
stocks  so  purchased,  or  shall  have  power  to  lease  the  premises  of 
such  companies,  paying  therefor  such  rental  as  they  may  deem 
proper,  whenever,  in  their  judgment,  it  is  for  the  best  interests  of 
the  trust  to  lease  rather  than  purchase. 

Seventh.  All  stocks  sold  and  transferred  to  said  trustees  shall 
be  held  by  them  and  their  successors  for  the  benefit  of  all  the  own- 
ers of  said  trust  certificates.  No  stocks  so  held  by  said  trustees 
shall  be  sold  or  surrendered  by  said  trustees,  during  the  contin- 
uance of  this  trust,  without  the  consent  of  a  majority,  in  number 
and  value,  of  the  holders  of  trust  certificates:  Provided,  however, 
That  said  trustees  may  from  time  to  time  assign  such  shares  of 
stock  as  may  be  necessary  to  qualify  any  person  or  persons  chosen 


38  Industrial  Combinations  and  Trusts 

or  desired  to  be  chosen  as  directors  of  any  companies,  the  stocks  of 
which  are  held  by  said  trustees. 

Eighth.  That  said  trustees  shall  have  power  to  cause  corpora- 
tions to  be  formed  for  the  purposes  and  with  all  or  any  of  the  powers 
specified  in  section  1  of  this  agreement:  Provided,  That  the  stock 
of  such  corporations  shall  be  issued  for  cash  or  for  property  at  its 
cash  value,  and  shall  be  issued  to  or  be  purchased  by  said  trustees 
in  the  manner  provided  in  section  6  of  this  agreement. 

Ninth.  Said  trustees  shall  receive  and  safely  keep  all  moneys 
received  from  dividends  or  interest  upon  stocks  or  moneys  held  in 
trust,  and  shall  distribute  the  same,  as  well  as  all  moneys  received 
from  sales  of  trust  property,  by  declaring  and  paying  monthly 
dividends  upon  said  trust  certificates  as  funds  accumulate  which 
are  not  needed  for  the  uses  and  expenses  of  the  Trust.  The  trustees 
shall,  however,  keep  separate  accounts  of  receipts  from  dividends 
and  interest,  and  of  receipts  from  sales  of  trust  property,  and  in 
declaring  any  dividend  in  which  moneys  derived  from  sales  of  trust 
property  are  included  shall  render  the  holders  of  trust  certificates 
a  statement  showing  what  amount  of  the  fund  distributed  was  de- 
rived from  such  sales  or  transfers. 

Tenth.  The  trustees  shall  render  to  the  holders  of  trust  certif- 
icates at  each  annual  meeting  a  statement  of  the  receipts  and  dis- 
bursements of  the  trust  for  the  year.  They  shall,  also,  whenever 
demanded  by  a  majority  in  value  of  the  holders  of  trust  certificates, 
furnish  a  true  and  perfect  inventory  and  appraisement  of  all 
property  held  in  trust,  and  a  statement  as  full  as  possible  of  the 
financial  affairs  of  the  various  companies  whose  stocks  are  held  in 
trust. 

Eleventh.  Said  trustees  shall  exercise  supervision,  so  far  as  their 
ownership  of  stocks  enables  them  to  do,  over  the  several  corpora- 
tions or  associations  whose  stock  is  held  by  said  trustees.  As 
stockholders  of  said  corporations  they  shall  elect,  or  endeavor  to 
elect,  honest  and  competent  men  as  directors  and  officers  thereof, 
who  shall  be  paid  a  reasonable  compensation  for  their  services. 
They  may  elect  themselves  as  such  directors  and  officers,  and  shall 
endeavor  to  secure  such  judicious  and  efficient  management  of 
such  corporations  as  shall  be  most  conducive  of  the  interests  of  the 
holders  of  trust  certificates. 

Twelfth.  None  of  the  powers  of  the  trustees  can  be  exercised 
except  by  unanimous  vote  of  their  full  number  either  in  person 
or  by  proxy,  except  in  the  election  of  officers  as  provided  in  the 


Representative  Trusts  39 

by-laws:  Provided,  That  no  proxy  to  represent  a  trustee  can  be 
given  to  or  be  voted  by  any  person  other  than  a  trustee;  and  in  case 
of  a  disagreement  among  the  trustees  upon  any  matter,  a  major- 
ity of  such  trustees  may  call  a  special  meeting  of  the  holders  of 
certificates,  as  herein  provided  for,  to  whom  shall  be  submitted  the 
matter  of  disagreement,  and  a  decision  of  a  majority  in  value  of  the 
holders  of  trust  certificates  present  in  person  or  by  proxy,  shall  be 
final,  or  such  matter  of  disagreement  may  be  submitted  at  any  regu- 
lar meeting.  The  whole  or  any  part  of  the  foregoing  provision 
of  this  article  may  be  modified  by  any  by-law  now  or  hereafter 
adopted  by  the  certificate  holders.  The  said  trustees  may  appoint 
from  their  own  number  an  executive  committee,  and  may  appoint 
other  committees  composed  wholly  or  partly  of  persons  not  of  the 
board  of  trustees,  and  delegate  to  such  committees  such  of  their 
powers  as  they  may  deem  advisable.  A  majority  of  each  committee 
may  exercise  all  the  powers  conferred  upon  such  committee. 

Thirteenth.  The  trustees  may  employ  and  pay  all  such  agents 
and  attorneys  as  they  may  find  it  necessary  to  employ  in  the  man- 
agement of  said  trust. 

Fourteenth.  Each  trustee  shall  be  entitled  to  a  salary  for  his 
services  of  $10  per  day:  Provided,  however,  That  such  salary  may 
be  increased  by  a  majority  of  the  certificate  holders  at  any  regu- 
lar or  special  meeting.  All  salaries  and  expenses  connected  with, 
and  growing  out  of,  the  execution  of  the  trust,  shall  be  paid  by  the 
trustees  from  the  trust  fund. 

Fifteenth.  The  board  of  trustees  shall  have  its  principal  office 
in  the  city  of  Chicago,  subject  to  change  by  a  vote  of  the  trustees, 
at  which  office,  or  in  a  place  of  safe  deposit  adjacent  thereto,  the 
stocks  held  in  trust  shall  be  kept. 

Sixteenth.  All  powers  and  duties  vested  in  the  trustees  herein 
named  shall  vest  in,  and  be  exercised  by,  the  successors  of  said 
trustees,  appointed  as  herein  prescribed. 

Seventeenth.  Elections  for  trustees  to  succeed  those  herein  ap- 
pointed shall  be  held  annually.  At  the  first  annual  election  three 
trustees  shall  be  elected  to  hold  their  office  for  one  year,  three  to 
hold  their  office  for  two  years,  and  three  to  hold  their  office  for 
three  years;  thereafter  three  trustees  shall  be  elected  annually 
to  take  the  place  of  those  retiring,  to  hold  their  office  for  three  years, 
except  those  elected  to  fill  a  vacancy  arising  from  any  cause  except 
expiration  of  term,  who  shall  be  elected  for  the  balance  of  the 
term  of  the  trustees  whose  place  they  are  elected  to  fill.     Every 


40  Industrial  Combinations  and  Trusts 

trustee  shall  hold  his  office  until  his  successor  is  elected  and 
qualified. 

Eighteenth.  No  person  shall  be  eligible  to  the  office  of  trustee 
unless  he  shall  at  the  time  of  his  election  be  the  actual  owner  of  at 
least  five  hundred  shares  of  trust  certificates,  which  shall  stand  in 
his  name  on  the  books  of  the  trust,  and  which  certificates,  or  an 
amount  of  not  less  than  five  hundred  shares,  he  shall  continue  to 
be  the  actual  owner  of  during  his  term  of  service,  and  the  owner- 
ship shown  as  above  provided. 

Nineteenth.  Trustees  shall  be  elected  by  ballot  by  the  owners 
of  trust  certificates  or  their  proxies.  At  all  meetings  the  owners 
of  trust  certificates  who  shall  be  registered  as  such  on  the  books 
of  the  trustees  may  vote  in  person  or  by  proxy,  and  shall  have  one 
vote  for  each  and  every  share  of  trust  certificates  standing  in  their 
names;  but  no  such  owner  shall  be  entitled  to  vote  upon  any  share 
which  has  not  stood  in  his  name  thirty  days  prior  to  the  day  ap- 
pointed for  the  election.  The  transfer  books  shall  be  closed  for 
thirty  days  immediately  preceding  the  annual  election.  A  major- 
ity of  the  shares  represented  at  such  elections  shall  elect. 

Twentieth.  The  annual  meeting  of  the  owners  of  said  trust 
certificates,  for  the  election  of  trustees  and  for  other  business,  shall 
be  held  at  the  office  of  the  trustees  on  the  Wednesday  nearest  the 
15th  day  of  April,  of  each  year,  and  said  meetings  may  be  adjourned 
from  day  to  day  until  its  business  is  completed.  Special  meetings 
of  the  owners  of  trust  certificates  may  be  called  by  a  majority  of 
the  trustees  at  such  times  and  places  as  they  may  appoint.  It 
shall  also  be  the  duty  of  the  trustees  to  call  a  special  meeting  of 
the  holders  of  trust  certificates  whenever  requested  so  to  do  by  a 
petition  signed  by  the  holders  of  33  1/3  per  cent,  in  value  of  such 
certificates.  The  business  of  such  special  meetings  shall  be  confined 
to  the  objects  specified  in  the  notice  given  therefor.  Notice  of  the 
time  and  place  of  all  meetings  of  the  owners  of  trust  certificates 
shall  be  given  by  mailing  a  notice  to  the  address  of  each  certificate 
holder,  so  far  as  known,  at  least  ten  days  before  such  meeting. 

Twenty-first.  At  any  meeting  by-laws  may  be  made,  amended, 
and  repealed  by  not  less  than  two-thirds  in  value  of  the  holders  of 
trust  certificates:  Provided,  however,  That  said  by-laws  shall  be  in 
conformity  with  this  agreement.  By-laws  may  be  also  adopted  by 
the  trustees:  Provided,  however,  that  said  by-laws  shall  not  be  in- 
consistent with  any  by-laws  which  have  been  or  may  be  adopted 
by  the  holders  of  trust  certificates,  nor  with  this  trust  agreement. 


Representative  Trusts  41 

Twenty-second.  Whenever  a  vacancy  occurs  in  the  board  of 
trustees  from  any  cause  other  than  the  expiration  of  the  term  of 
office,  the  remaining  trustees  may  appoint  a  trustee  to  fill  the 
vacancy  until  the  next  annual  meeting,  or  at  their  option  may  call 
a  meeting  of  the  owners  of  trust  certificates  for  the  purpose  of 
electing  a  trustee  to  fill  the  vacancy  or  vacancies. 

Twenty-third.  If,  for  any  reason,  at  any  time,  a  trustee  or 
trustees  shall  be  appointed  by  any  court  to  fill  a  vacancy  or  va- 
cancies, the  trustee  or  trustees  so  appointed  shall  hold  his  or  their 
office  or  offices  only  until  his  or  their  successor  or  successors  shall 
be  appointed  or  elected  in  the  manner  above  provided  for. 

Twenty-fourth.  It  shall  be  obligatory  upon  all  trustees  to  attend 
each  and  every  meeting  of  the  board  of  trustees,  either  in  person 
or  by  proxy,  and  in  the  event  of  any  trustee  absenting  himself 
from  three  successive  meetings  or  failing  to  be  represented  by  proxy 
at  such  meetings,  then,  in  such  case,  the  office  held  by  such  trustee 
shall  be  considered  vacant,  and  the  vacancy  be  filled  as  hereinbe- 
fore provided. 

Twenty-fifth.  Whenever  any  change  shall  occur  in  the  board  of 
trustees  the  legal  title  to  the  stock  and  other  property  held  in 
trust  shall  pass  to  and  vest  in  the  successors  of  said  trustees 
without  any  formal  transfer  thereof.  But  formal  transfer  shall 
be  made,  and  it  shall  be  the  duty  of  the  board  of  trustees  to 
obtain  the  same,  and  it  shall  be  the  duty  of  any  retiring  trustee, 
or  the  executor  or  administrator  of  any  deceased  trustee,  to  make 
such  transfer. 

Twenty-sixth.  The  trust  shall  continue  for  twenty-five  years 
from  this  date  and  shall  thereafter  continue  until  terminated  by  a 
vote  of  66  2/3  per  cent,  in  value  of  the  holders  of  certificates  at  a 
meeting  called  for  that  purpose.  After  66  2/3  per  cent,  in  value 
of  the  holders  of  trust  certificates  shall  vote  to  terminate  the  trust 
as  aforesaid,  they  may  at  the  same  meeting,  or  at  a  subsequent 
meeting  called  for  that  purpose,  decide  by  a  vote  of  51  per  cent, 
of  their  number  the  mode  in  which  the  affairs  of  the  trust  shall  be 
wound  up,  and  whether  the  trust  shall  be  distributed,  or  whether  it 
shall  be  sold  and  the  value  thereof  distributed,  or  whether  part,  and 
if  so,  what  part,  shall  be  divided  and  what  part  shall  be  sold,  and 
whether  such  sales  shall  be  public  or  private.  The  trustees,  who 
shall  continue  to  hold  their  offices  for  that  purpose,  shall  wind  up 
the  affairs  of  the  trust  in  the  mode  agreed  upon  by  the  holders  of 
trust  certificates  as  aforesaid. 


42  Industrial  Combinations  and  Trusts 

Form  of  trust  certificate. 
No. Shares  of  $100  each.  shares. 

DISTILLERS  AND  CATTLE  FEEDERS'   TRUST. 


This  is  to  certify  that is  entitled  to 


shares  in  the  equity  to  the  property  held  by  the  trustees  of  the 
Distillers  and  Cattle  Feeders'  Trust,  transferable  only  on  the  books 
of  said  trustees  on  surrender  of  this  certificate.  This  certificate 
is  issued  upon  condition  that  the  holder  or  any  transferee  thereof 
shall  be  subject  to  all  the  provisions  of  the  agreement  creating  said 
trust,  and  by  the  by-laws  adopted  in  pursuance  of  said  agreement 

as  fully  as  if had  signed  the  said  trust  agreement. 

Witness  the  hands  of  the  president,  secretary,  and  treasurer 

of  the board  of  trustees,  this day  of , 

a.  d.  188-,  at  the . 

,  President. 

,  Treasurer. 

,  Secretary. 


[Back] 

For  value  received hereby  sell  and  transfer  to 

shares  of  the  Distillers  and  Cattle  Feeders' 


Trust,  standing  in  my  name  on  the  books  of  said  trust.    And 

hereby  irrevocably  appoint attorney  to  make  the 

necessary  transfer  upon  the  books  of  said  trust  in  accordance  with 
the  regulations  thereof,  and  upon  the  conditions  expressed  upon  the 
face  of  this  certificate. 

Dated ,  188- 

In  presence  of . 

(Here  follows  list  of  signatures.) 


CHAPTER  IIT 
LEGISLATIVE  OPPOSITION  TO  THE  TRUST 
NOTE 

The  development  of  the  Trust  type  of  combination  aroused  a 
storm  of  opposition.  This  was  scarcely  remarkable.  The  power, 
intangibility  and  secrecy  of  the  organization,  its  extra-legal  char- 
acter and  its  lack  of  amenability  to  law  all  ran  counter  to  American 
ideas  of  justice  and  legality.  The  opposition  rapidly  gathered 
strength.  Under  the  pressure  of  public  sentiment  both  the  Re- 
publican and  Democratic  parties — although  it  was  recognized 
that  the  campaign  would  be  fought  out  on  the  tariff  issue — in- 
serted Anti-Trust  planks  in  their  respective  Presidential  platforms 
in  the  conventions  of  1888.  This  action  later  bore  fruit  in  the  pas- 
sage of  the  Sherman  Anti-Trust  Act  of  1890.  In  the  meantime, 
the  State  Legislatures  had  not  been  idle.  The  latter  eighties  and 
early  nineties  witnessed  a  flood  of  State  Anti-Trust  legislation,  which 
swept  the  entire  country.  Kansas,  Nebraska,  Maine,  Michigan, 
North  Carolina,  Iowa,  Kentucky  and  Illinois  were  conspicuous 
leaders  in  the  movement.  By  1894,  the  statute  books  of  about 
twenty  States  showed  legislation  of  one  kind  or  another  looking 
toward  the  suppression  of  Trusts,  Pools  and  other  combinations. 
The  exhibits  in  this  chapter  have  been  intended  merely  to  give  an 
idea  of  this  legislation. — Ed. 

Exhibit  i 
the  sherman  anti-trust  law  1 

An  act  to  protect  trade  and  commerce  against  unlawful  restraints 
and  monopolies. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled, 

1  Act  of  July  2,  1890,  26  U.  S.  Stats,  at  Large,  51st  Cong.,  1st  Sess.,  chap. 
647,  p.  209. 

43 


44  Industrial  Combinations  and  Trusts 

Sec.  i.  Every  contract,  combination  in  the  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  among 
the  several  States,  or  with  foreign  nations,  is  hereby  declared  to  be 
illegal.  Every  person  who  shall  make  any  such  contract  or  engage  in 
any  such  combination  or  conspiracy,  shall  be  deemed  guilty  of  a  mis- 
demeanor, and,  on  conviction  thereof,  shall  be  punished  by  fine  not 
exceeding  five  thousand  dollars,  or  by  imprisonment  not  exceeding 
one  year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

Sec.  2.  Every  person  who  shall  monopolize,  or  attempt  to  mon- 
opolize, or  combine  or  conspire  with  any  other  person  or  persons,  to 
monopolize  any  part  of  the  trade  or  commerce  among  the  several 
States,  or  with  foreign  nations, shall  be  deemed  guilty  of  a  misdemea- 
nor, and,  on  conviction  thereof,  shall  be  punished  by  fine  not  exceed- 
ing five  thousand  dollars,  or  by  imprisonment  not  exceeding  one 
year,  or  by  both  said  punishments,  in  the  discretion  of  the  court. 

Sec.  3.  Every  contract,  combination  in  form  of  trust  or  other- 
wise, or  conspiracy,  in  restraint  of  trade  or  commerce  in  any  Ter- 
ritory of  the  United  States  or  of  the  District  of  Columbia,  or  in 
restraint  of  trade  or  commerce  between  any  such  Territory  and 
another,  or  between  any  such  Territory  or  Territories  and  any  State 
or  States  or  the  District  of  Columbia,  or  with  foreign  nations, 
or  between  the  District  of  Columbia  and  any  State  or  States  or 
foreign  nations,  is  hereby  declared  illegal.  Every  person  who  shall 
make  any  such  contract  or  engage  in  any  such  combination  or 
conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  con- 
viction thereof,  shall  be  punished  by  fine  not  exceeding  five  thou- 
sand dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by  both 
said  punishments,  in  the  discretion  of  the  court. 

Sec.  4.  The  several  circuit  courts  of  the  United  States  are  hereby 
invested  with  jurisdiction  to  prevent  and  restrain  violations  of 
this  act;  and  it  shall  be  the  duty  of  the  several  district  attorneys 
of  the  United  States,  in  their  respective  districts,  under  the  di- 
rection of  the  Attorney-General,  to  institute  proceedings  in  equity 
to  prevent  and  restrain  such  violations.  Such  proceedings  may  be 
by  way  of  petition  setting  forth  the  case  and  praying  that  such 
violation  shall  be  enjoined  or  otherwise  prohibited.  When  the 
parties  complained  of  shall  have  been  duly  notified  of  such  petition 
the  court  shall  proceed,  as  soon  as  may  be,  to  the  hearing  and  de- 
termination of  the  case;  and  pending  such  petition  and  before  final 
decree,  the  court  may  at  any  time  make  such  temporary  restrain- 
ing order  or  prohibition  as  shall  be  deemed  just  in  the  premises. 


Legislative  Opposition  to  the  Trust  45 

Sec.  5.  Whenever  it  shall  appear  to  the  court  before  which  any 
proceeding  under  section  four  of  this  act  may  be  pending,  that  the 
ends  of  justice  require  that  other  parties  should  be  brought  before 
the  court,  the  court  may  cause  them  to  be  summoned,  whether 
they  reside  in  the  district  in  which  the  court  is  held  or  not;  and 
subpoenas  to  that  end  may  be  served  in  any  district  by  the  marshal 
thereof. 

Sec.  6.  Any  property  owned  under  any  contract  or  by  any  com- 
bination, or  pursuant  to  any  conspiracy  (and  being  the  subject 
thereof)  mentioned  in  section  one  of  this  act,  and  being  in  the  course 
of  transportation  from  one  State  to  another,  or  to  a  foreign  coun- 
try, shall  be  forfeited  to  the  United  States,  and  may  be  seized  and 
condemned  by  like  proceedings  as  those  provided  by  law  for  the 
forfeiture,  seizure,  and  condemnation  of  property  imported  into 
the  United  States  contrary  to  law. 

Sec.  7.  Any  person  who  shall  be  injured  in  his  business  or  prop- 
erty by  any  other  person  or  corporation  by  reason  of  anything  for- 
bidden or  declared  to  be  unlawful  by  this  act,  may  sue  therefor 
in  any  circuit  court  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found,  without  respect  to  the  amount  in 
controversy,  and  shall  recover  three  fold  the  damages  by  him  sus- 
tained, and  the  costs  of  suit,  including  a  reasonable  attorney's  fee. 

Sec.  8.  That  the  word  "person,"  or  "persons,"  wherever  used 
in  this  act  shall  be  deemed  to  include  corporations  and  associations 
existing  under  or  authorized  by  the  laws  of  either  the  United  States, 
or  the  laws  of  any  of  the  Territories,  the  laws  of  any  State,  or  the 
laws  of  any  foreign  country. 

Exhibit  2 

KANSAS  l 

Be  it  enacted  by  the  Legislature  of  the  State  of  Kansas: 
Section  i.  That  all  arrangements,  contracts,  agreements, 
trusts  or  combinations  between  persons  or  corporations  made 
with  a  view  or  which  tend  to  prevent  full  and  free  competition 
in  the  importation,  transportation  or  sale  of  articles  imported  into 
this  state  or  in  the  product,  manufacture  or  sale  of  articles  of 
domestic  growth  or  product  of  domestic  raw  material,  or  in  the 
loan  or  use  of  money,  or  to  fix  attorneys'  or  doctors'  fees,  and  all 

1  State  of  Kansas,  Session  Laws  of  1889,  Chap.  CCLVII,  pp.  389  ff. 


46  Industrial  Combinations  and  Trusts 

arrangements,  contracts,  agreements,  trusts  or  combinations  be- 
tween persons  or  corporations  designed  or  which  tend  to  advance, 
reduce  or  control  the  price  or  the  cost  to  the  producer  or  to  the  con- 
sumer of  any  such  products  or  articles,  .  .  .,  are  hereby  declared 
to  be  against  public  policy,  unlawful  and  void. 

Sec.  2.  It  shall  not  be  lawful  for  any  corporation  to  issue  or  to 
own  trust  certificates,  other  than  the  regular  and  lawfully  author- 
ized stock  thereof,  or  for  any  corporation,  agent,  officer  or  employes, 
or  the  directors  or  stockholders  of  any  corporation,  to  enter  into 
any  combination,  contract  or  agreement  with  any  person  or  per- 
sons, corporation  or  corporations,  or  with  any  stockholder  or  di- 
rector thereof,  the  purpose  and  effect  of  which  combination,  con- 
tract or  agreement,  shall  be  to  place  the  management  or  control 
of  such  combination  or  combinations,  or  the  manufactured  product 
thereof,  in  the  hands  of  any  trustee  or  trustees,  with  the  intent  to 
limit  or  fix  the  price  or  lessen  the  production  and  sale  of  any  article 
of  commerce,  use,  or  consumption,  or  to  prevent,  restrict,  or  di- 
minish the  manufacture  or  output  of  any  such  article. 

Sec.  3.  That  all  persons  entering  into  any  such  arrangement, 
contract,  agreement,  trust,  or  combination,  or  who  shall,  after  the 
passage  of  this  act,  attempt  to  carry  out  or  act  under  any  such  ar- 
rangement, contract,  agreement,  trust  or  combination  described  in 
sections  one  or  two  of  this  act,  either  on  his  own  account  or  as 
agent  or  attorney  for  another,  or  as  an  officer,  agent  or  stockholder 
of  any  corporation,  or  as  a  trustee,  committee,  or  in  any  capacity 
whatever,  shall  be  guilty  of  a  misdemeanor,  and  on  conviction 
thereof  shall  be  subject  to  a  fine  of  not  less  than  one  hundred  dollars 
and  not  more  than  one  thousand  dollars,  and  to  imprisonment  not 
less  than  thirty  days  and  not  more  than  six  months,  or  to  both  such 
fine  and  imprisonment,  in  the  discretion  of  the  court. 

Exhibit  3 

kentucky  * 

(Act  May  20,  1890) 

POOLS— TRUSTS— CONSPIRACIES 

§3915.  Defined  and  prohibited.  That  if  any  corporation  under 
the  laws  of  Kentucky,  or  under  the  laws  of  any  other  State  or 

1  The  Kentucky  Statutes,  1894,  Chap.  101,  Sees.  3915-3919,  pp.  1267-68. 


Legislative  Opposition  to  the  Trust  47 

country,  for  transacting  or  conducting  any  kind  of  business  in  this 
State,  or  any  partnership,  company,  firm  or  individual,  or  other 
association  of  persons,  shall  create,  establish,  organize  or  enter 
into,  or  become  a  member  of,  or  a  party  to,  or  in  any  way  interested 
in  any  pool,  trust,  combine,  agreement,  confederation  or  under- 
standing with  any  other  corporation,  partnership,  individual  or 
person,  or  association  of  persons,  for  the  purpose  of  regulating  or 
controlling  or  fixing  the  price  of  any  merchandise,  manufactured 
articles  or  property  of  any  kind,  or  shall  enter  into,  become  a 
member  of,  or  party  to,  or  in  any  way  interested  in  any  pool, 
agreement,  contract,  understanding,  combination  or  confedera- 
tion, having  for  its  object  the  fixing  or  in  any  way  limiting  the 
amount  or  quantity  of  any  article  of  property,  commodity  or 
merchandise  to  be  produced  or  manufactured,  mined,  bought  or 
sold,  shall  be  deemed  guilty  of  the  crime  of  conspiracy,  and  pun- 
ished therefor  as  provided  in  the  subsequent  sections  of  this  act. 

§  3916.  Trust  certificates— when  sale  of  unlawful.  It  shall  not 
be  lawful  for  any  corporation  to  issue  or  to  own,  have  or  sell  any 
trust  certificates  or  stocks,  or  for  any  corporation's  agent,  officer 
or  employe,  agent  or  director,  or  any  corporation  to  enter  into, 
either  verbally  or  in  writing,  any  combinations,  contract,  agree- 
ment or  understanding  with  any  person  or  persons,  corporation 
or  corporations,  or  with  any  director,  agent  or  officer  thereof,  the 
purpose  or  effect  of  which  combination,  contract,  agreement  or 
understanding  would  be  to  place  the  management,  control  or  any 
part  of  the  business  of  such  combination  or  association,  or  the 
manufactured  product  thereof,  in  the  hands  or  under  the  control, 
in  the  whole  or  in  part,  of  any  trustee  or  trustees,  or  agents,  or 
any  person  whatever,  with  the  intent,  or  to  have  the  effect  to  limit, 
fix,  establish  or  change  the  price  of  the  production  or  sale  of  any 
article  of  property  or  of  commerce,  or  to  prevent,  restrict,  or  in  any 
way  ch'minish  the  manufacture  or  output  of  any  such  article  or 
property. 

§3917.  Penalties  imposed  on  corporations  and  officers.  If 
any  corporation,  company,  firm,  partnership  or  person,  or  association 
of  persons,  shall,  by  court  of  competent  jurisdiction,  be  found  guilty 
of  any  violation  of  any  of  the  provisions  of  this  act,  such  guilty 
party  shall  be  punished  by  a  fine  of  not  less  than  five  hundred  dol- 
lars, and  not  more  than  five  thousand  dollars.  Any  president, 
manager,  director  or  other  officer  or  agent,  or  receiver  of  any  cor- 
poration, company,  firm,  partnership  or  any  corporation,  company, 


43  Industrial  Combinations  and  Trusts 

firm  or  association,  or  member  of  any  corporation,  firm  or  asso- 
ciation, or  any  member  of  any  company,  firm  or  other  association, 
or  any  individual  found,  by  a  court  of  competent  jurisdiction,  guilty 
of  any  violation  of  this  act  shall  be  punished  by  a  fine  of  not  less 
than  five  hundred  dollars  nor  more  than  five  thousand  dollars, 
or  may  be  imprisoned  in  the  county  jail  not  less  than  six  months 
nor  more  than  twelve  months,  or  may  be  both  so  fined  and  im- 
prisoned in  the  discretion  of  the  court  or  jury  trying  the  case. 

§3918.  Contract  in  violation  of  law  void.  Any  contract  or 
agreement  or  understanding  in  violation  of  the  provisions  of  the  pre- 
ceding sections  of  this  act  shall  be  null  and  void;  and  any  purchasers 
of  property  or  article,  or  of  any  commodity,  from  any  individual, 
firm,  company  or  corporation  transacting  business  contrary  to 
the  preceding  sections  of  this  act,  shall  not  be  liable  for  the  price 
or  payment  of  such  article  or  commodity  or  property,  and  may 
plead  and  rely  on  this  act  as  a  complete  defense  to  any  suit  for  such 
price  or  payment. 

§  3919.  Charter  of  corporation  forfeited  upon  conviction.  If 
any  corporation  created  or  organized  by  or  under  the  laws  of  this 
State  shall  be  indicted  and  convicted  for  any  violation  of  any  of  the 
provisions  of  this  act,  such  indictment,  trial  and  conviction  in  any 
court  of  competent  jurisdiction  shall  have  the  effect  to  forfeit  the 
charter  of  such  corporation  without  any  further  proceedings  on  the 
subject  of  the  forfeiture  of  its  charter;  but  any  corporation  whose 
charter  is  so  forfeited  shall  have  the  right  of  appeal  as  is  provided 
in  other  cases,  and  the  filing  of  the  bond  as  is  required  by  law  shall 
suspend  the  judgment  of  forfeiture  until  same  is  passed  upon  by 
the  court  to  which  the  case  is  appealed. 


Exhibit  4 

michigan  1 

Section  i.  The  People  of  the  State  of  Michigan  enact,  That  all 
contracts,  agreements,  understandings  and  combinations  made, 
entered  into,  or  knowingly  assented  to,  by  and  between  any  parties 
capable  of  making  a  contract  or  agreement  which  would  be  valid 
at  law  or  in  equity,  the  purpose  or  object  or  intent  of  which  shall 

1  Public  Acts  and  Joint  and  Concurrent  Resolutions  of  the  Legislature  of  the 
State  of  Michigan,  1889,  No.  225,  p.  331  ff. 


Legislative  Opposition  to  the  Trust  49 

be  to  limit,  control,  or  in  any  manner  to  restrict  or  regulate  the 
amount  of  production  or  the  quantity  of  any  article  or  commodity 
to  be  raised  or  produced  by  mining,  manufacture,  agriculture  or 
any  other  branch  of  business  or  labor,  or  to  enhance,  control  or 
regulate  the  market  price  thereof,  or  in  any  manner  to  prevent  or 
restrict  free  competition  in  the  production  or  sale  of  any  such  article 
or  commodity,  shall  be  utterly  illegal  and  void,  and  every  such 
contract,  agreement,  understanding  and  combination  shall  con- 
stitute a  criminal  conspiracy.  And  every  person  who,  for  himself 
personally,  or  as  a  member  or  in  the  name  of  a  partnership,  or  as 
a  member,  agent,  or  officer  of  a  corporation,  or  of  any  association 
for  business  purposes  of  any  kind,  who  shall  enter  into  or  knowingly 
consent  to  any  such  void  and  illegal  contract,  agreement,  under- 
standing or  combination,  shall  be  deemed  a  party  to  such  conspir- 
acy. And  all  parties  so  offending  shall,  on  conviction  thereof,  be 
punished  by  fine  of  not  less  than  fifty  dollars,  nor  more  than  three- 
hundred  dollars,  or  by  imprisonment  in  the  county  jail  not  more  than 
six  months,  or  by  both  such  fine  and  imprisonment  at  the  dis- 
cretion of  the  court.  And  the  prosecution  for  offenses  under  this 
section  may  be  instituted  and  the  trial  had  in  any  county  where 
any  of  the  conspirators  became  parties  to  such  conspiracy,  or  in 
which  any  one  of  the  conspirators  shall  reside:  Provided,  however, 
That  this  section  shall  in  no  manner  invalidate  or  affect  contracts 
for  what  is  known  and  recognized  at  common  law  and  in  equity 
as  contracts  for  the  "good  will  of  a  trade  or  business;"  but  all  such 
contracts  shall  be  left  to  stand  upon  the  same  terms  and  within 
the  same  limitations  recognized  at  common  law  and  in  equity. 

Sec.  2.  Every  contract,  agreement,  understanding,  and  com- 
bination declared  void  and  illegal  by  the  first  section  of  this  act 
shall  be  equally  void  and  illegal  within  this  State,  whether  made  and 
entered  into  within  or  without  this  State. 

Sec.  3.  The  carrying  into  effect,  in  whole  or  in  part,  of  any  such 
illegal  contract,  agreement,  understanding  or  combination  as  men- 
tioned in  the  first  section  of  this  act  and  every  act  which  shall  be 
done  for  that  purpose  by  any  of  the  parties  or  through  their  agency 
or  the  agency  of  any  one  of  them,  shall  constitute  a  misdemeanor, 
and  on  conviction  the  offenders  shall  be  punished  by  imprisonment 
in  the  State  prison  not  more  than  one  year,  or  in  the  county  jail  not 
more  than  six  months,  or  by  a  fine  not  less  than  one  hundred  nor 
more  than  five  hundred  dollars,  or  by  both  such  fine  and  imprison- 
ment in  the  discretion  of  the  court. 


50  Industrial  Combinations  and  Trusts 


Exhibit  5 

no^tii  carolina  * 

An  act  to  prohibit  trusts  in  the  State  of  North  Carolina,  and 
to  provide  for  the  punishment  of  persons  connected  with  them. 

The  General  A  ssembly  of  North  Carolina  do  enact: 

Section  i.  That  all  combinations  and  trusts  as  defined  by  this 
act  are  unlawful,  and  dangerous  to  the  liberty  of  the  people,  and  are 
hereby  forbidden  to  be  formed  or  carried  on  in  this  State. 

Sec.  2.  That  a  trust  is  an  arrangement,  understanding  or  agree- 
ment, either  private  or  public,  entered  into  by  two  or  more  persons 
or  corporations  for  the  purposes  of  increasing  or  reducing  the  price 
of  the  shares  of  stock  of  any  company  or  corporation,  or  of  any  class 
of  products,  materials  or  manufactured  articles,  beyond  the  price 
that  would  be  fixed  by  the  natural  demand  for  or  the  supply  of  such 
shares,  products,  materials  or  manufactured  articles;  and  any  at- 
tempt to  carry  out  such  purpose  shall  be  evidence  that  such  ar- 
angement,2  understanding  or  agreement  exists. 

Sec.  3.  That  any  persons,  company  or  corporation  who  shall 
form,  or  attempt  to  form,  a  trust  in  this  State,  or  the  agent  or 
the  representative  of  any  trust  in  any  State  or  county,  who  shall 
attempt  to  carry  on  operations  in  this  State,  shall  be  guilty  of  a 
misdemeanor,  and  upon  conviction  may  be  fined  not  more  than 
ten  thousand  dollars  or  may  be  imprisoned  not  more  than  ten  years 
for  each  offense. 

Sec.  4.  That  any  person,  company  or  corporation  who  enter 
into  an  arrangement,  understanding  or  agreement  not  to  mine, 
manufacture,  buy,  sell  or  transport  more  than  a  certain  specified 
amount  of  any  goods,  products  or  commodities  within  a  specified 
time,  will  have  violated  section  three  of  this  act  and  will  be  liable 
to  indictment  therefor;  and  any  person,  company  or  corporation 
who  give  bond  or  make  a  forfeit  of  any  kind  not  to  break  such 
arrangement,  understanding  or  agreement  shall  be  guilty  of  a  mis- 
demeanor, and  on  conviction  thereof  shall  be  fined  or  imprisoned, 
or  both,  in  the  discretion  of  the  court. 

Sec.  5.  That  any  merchant,  broker,  manufacturer  or  dealers 
in  raw  materials  of  any  kind,  or  the  agent  of  such  persons,  who  shall 

1  Laws  and  Resolutions  of  the  State  of  North  Carolina,  1889,  Chap.  374, 

PP-  372-373- 

2  Thus  in  original. — Ed. 


Legislative  Opposition  to  the  Trust  51 

sell  any  particular  class  of  goods,  raw  materials  or  manufactured 
articles  for  less  than  actual  cost  for  the  purpose  of  breaking  down 
competitors,  shall  be  guilty  of  a  misdemeanor,  and  upon  conviction 
may  be  fined  or  imprisoned,  or  both,  in  the  discretion  of  the  court: 
Provided,  that  nothing  contained  in  this  act  shall  operate  or  be 
construed  so  as  to  forbid  or  prevent  any  person  or  persons  who  de- 
sire and  intend  to  purchase  any  article  or  commodity  for  his  or 
their  own  use  or  consumption,  from  combining  or  otherwise  law- 
fully acting  so  as  to  protect  or  help  themselves  from  imposition 
in  the  cost  or  purchase  price  of  such  articles  or  commodities  as 
they  or  either  of  them  may  design  and  intend  to  use  or  consume. 

Sec.  6.  That  this  act  shall  be  in  full  force  and  effect  from  and 
after  the  first  day  of  May  of  the  year  one  thousand  eight  hundred 
and  eighty-nine. 


CHAPTER  IV 

JUDICIAL  ATTACK  ON  THE  TRUST 

NOTE 

Even  before  the  passage  by  the  State  Legislatures  and  Congress 
of  the  mass  of  legislation  referred  to  in  the  note  to  the  preceding 
chapter  the  assault  upon  the  trust  form  of  combination  had  been 
begun  through  the  judicial  arm  of  government  under  existing  law. 
The  first  gun  of  the  attack  was  fired  by  the  State  of  Louisiana  against 
the  American  Cotton  Oil  Trust  early  in  1887,  in  an  attempt  to 
have  that  combination  declared  an  illegal  association,  so  far  as  its 
operations  in  the  State  of  Louisiana  were  concerned,  and  to  secure 
the  liquidation  and  winding  up  of  its  affairs.  This  proceeding 
was  shortly  followed  by  a  suit  brought  by  the  Attorney  General 
of  the  State  of  New  York  against  the  North  River  Sugar  Refining 
Company,  one  of  the  members  of  the  Sugar  Refineries  Company. 
Almost  simultaneously  therewith,  the  same  trust  was  assailed  in 
the  Superior  Court  of  California.  In  1890  the  State  of  Ohio  began 
an  action  against  the  Standard  Oil  Company  of  Ohio,  and  in  the 
same  year,  Nebraska  brought  suit  against  the  Nebraska  Distilling 
Company  which  had  become  a  member  of  the  Distillers  and  Cat- 
tle Feeders'  Trust.  Finally  in  189 1,  a  Federal  Court  declined 
positively  to  prevent  a  corporation  by  means  of  an  injunction  from 
violating  a  covenant  made  by  it  in  consideration  of  its  admission 
to  a  trust.  In  order  to  make  absolutely  clear  the  grounds  upon 
which  the  illegality  of  the  Trust  was  based,  excerpts  from  some  of 
these  decisions  have  been  given  in  the  following  pages. — Ed. 

Exhibit  i 

state  ex  rel.  attorney  v.  standard  oil  company  x 

Minsiiall,   J.    Three  questions  arise  upon  the  pleadings:   1. 
Should  the  defendant,  The  Standard  Oil  Company,  be  regarded  as 
a  party  in  its  corporate  capacity,  to  the  agreement  constituting  the 
1  49  Ohio  St.  137;  30  N.  E.  279. 
52 


Judicial  Attack  on  the  Trust  53 

Standard  Oil  Trust.  2.  Had  the  company  power  to  become  a  party 
to  such  an  agreement.  3.  If  so,  is  the  right  of  the  state  to  demand 
a  forfeiture  of  its  corporate  franchises,  or  of  the  power  to  make 
and  perform  such  agreements,  barred  by  lapse  of  time. 

1.  It  will  be  observed  on  reading  the  answer,  that  while  the  de- 
fendant denies  that  it  "entered  into  or  become  a  party  to  either 
or  both  of  the  agreements  in  said  petition  set  forth,"  and  also, 
"denies  that  it  has  at  any  time  or  in  any  manner  acquiesced  in,  or 
observed,  performed  or  carried  out  either  or  both  of  said  agree- 
ments," it  does  not  deny  the  averment  of  the  petition,  that  "all 
of  the  owners  and  holders  of  its  capital  stock,  including  all  the 
officers  and  directors  of  said  company,  signed  said  agreements." 
Nor  could  it  have  been  the  intention  to  do  so,  as  the  answer  pro- 
ceeds to  admit,  "  that  it,"  the  corporation,  "is  informed  and  believes 
that  the  individuals  named  in  the  agreement,  being  the  same  in- 
dividuals who  executed"  it,  "did  enter  into  the  agreements  set 
forth"  in  the  petition;  claiming  "that  said  agreements  were  agree- 
ments of  individuals  in  their  individual  capacity  and  with  refer- 
ence to  their  individual  property,  and  were  not,  nor  were  they  de- 
signed to  be,  corporate  agreements."  The  claim  is  based  upon  the 
argument,  that  the  corporation  is  a  legal  entity  separate  from 
its  stockholders,  that  in  it  are  vested  all  the  property  and  powers 
of  the  company,  and  can  only  be  affected  by  such  acts  and  agree- 
ments as  are  done  or  executed  on  its  behalf  by  its  corporate  agencies 
acting  within  the  legitimate  scope  of  their  powers.  That  its  stock- 
holders are  not  the  corporation,  that  their  shares  are  their  individual 
property,  and  that  they  may  each  and  all  dispose  of,  and  make  such 
agreements  affecting  their  shares,  as  best  suit  their  private  in- 
terests; and  that  no  such  acts  and  agreements  of  stockholders, 
subservient  of  their  private  interests,  can  be  ascribed  to  the  com- 
pany as  a  separate  entity,  though  done  and  concurred  in  by  each 
and  all  of  its  stockholders. 


Now,  so  long  as  a  proper  use  is  made  of  the  fiction,  that  a  cor- 
poration is  an  entity  apart  from  its  shareholders,  it  is  harmless, 
and,  because  convenient,  should  not  be  called  in  question;  but 
where  it  is  urged  to  an  end  subversive  of  its  policy,  or  such  is  the 
issue,  the  fiction  must  be  ignored,  and  the  question  determined, 
whether  the  act  in  question,  though  done  by  shareholders,  that  is 
to  say,  by  the  persons  united  in  one  body,  was  done  simply  as 


54  Industrial  Combinations  and  Trusts 

individuals  and  with  respect  to  their  individual  interests  as  share- 
holders, or  was  done  ostensibly  as  such,  but,  as  a  matter  of  fact, 
to  control  the  corporation  and  afTect  the  transaction  of  its  business, 
in  the  same  manner  as  if  the  act  had  been  clothed  with  all  the 
formalities  of  a  corporate  act.  This  must  be  so,  because,  the  stock- 
holders having  a  dual  capacity,  and  capable  of  acting  in  either, 
and  a  possible  interest  to  conceal  their  character  when  acting  in 
their  corporate  capacity,  the  absence  of  the  formal  evidence  of  the 
character  of  the  act,  cannot  preclude  judicial  inquiry  on  the  sub- 
ject. If  it  were  otherwise  then,  in  one  department  of  the  law,  fraud 
would  enjoy  an  immunity  awarded  to  it  in  no  other. 

Therefore,  the  real  question  we  are  now  to  determine  is,  whether 
it  appears  from  the  face  of  the  pleadings,  giving  effect  to  all  the 
denials  of  fact  contained  in  the  answer,  that  the  execution  of  the 
agreement  set  forth  in  the  petition,  should  be  imputed  to  the  asso- 
ciation of  persons  constituting  The  Standard  Oil  Company  of 
Ohio,  acting  in  their  corporate  capacity. 

The  agreement  provides  in  the  first  place  that  the  parties  to  it 
shall  be  divided  into  three  classes,  the  first  class  to  embrace  all 
the  stockholders  and  members  of  certain  corporations  and  limited 
partnerships,  the  defendant,  The  Standard  Oil  Company  of  Ohio, 
being  one.  It  is  then  covenanted  by  the  parties,  that,  as  soon  as 
practicable  a  corporation  shall  be  formed  in  each  of  certain  states, 
under  the  laws  thereof,  Ohio  being  one,  to  mine  for,  produce,  manu- 
facture, refine  and  deal  in  petroleum  and  all  its  products;  with  the 
proviso,  however,  that  instead  of  organizing  a  new  corporation, 
any  existing  one  "may  be  used  for  the  purpose  when  it  can  advan- 
tageously be  done,"  and  in  Ohio  the  defendant  has  been  so  used. 

In  a  subsequent  part  of  the  agreement,  nine  trustees  are  selected, 
their  powers  and  duties  are  defined,  and  provision  made  for  the 
selection  of  their  successors. 

As  will  hereafter  appear,  it  is  made  the  duty  of  the  parties  to  the 
agreement,  to  transfer  their  stocks  or  interests  in  their  respective 
companies  or  firms,  to  these  trustees,  who  hold  the  same  in  trust, 
but  with  the  power  to  vote  on  the  same  as  though  the  real  owners; 
in  consideration  of  which,  trust  certificates  are  issued  to  the  owners, 
who,  as  the  owners  of  such  certificates,  elect  the  successors  of  the 
trustees. 

It  is  then  provided  that  all  the  property,  assets  and  business 
of  the  corporations  and  limited  partnerships  embraced  in  the  first 
class  "  shall  be  transferred  to  and  vested  in  the  said  several  Stand- 


Judicial  Attack  on  the  Trust 

ard  Oil  Companies."  And  in  order  to  accomplish  this  purpose, 
it  is  provided  that  "the  directors  and  managers  of  each  and  all 
of  the  several  corporations  and  limited  partnerships  mentioned  in 
class  first,  are  hereby  authorized  and  directed  by  the  stockholders 
and  members  thereof  (all  of  them  being  parties  to  this  agreement), 
to  sell,  assign,  transfer,  convey  and  make  over,  for  the  consideration 
hereinafter  mentioned,  to  the  Standard  Oil  Company  or  companies, 
of  the  proper  state  or  states,  as  soon  as  said  corporations  are  or- 
ganized and  ready  to  receive  the  same,  all  the  property,  real  and 
personal,  assets  and  business,  of  said  corporations  and  limited 
partnerships." 

Now,  in  the  case  of  the  defendant,  it  will  be  observed,  that  this 
contemplated,  and  could  not  have  been  accomplished,  without 
corporate  action.  The  Standard  Oil  Company  of  Ohio  was  re- 
quired to  transfer  all  its  property,  assets  and  business  to  a  new 
company  to  be  organized  in  the  state;  and  this  was  to  be  accom- 
plished by  the  obligation  imposed  on  its  members  and  stockholders, 
all  of  whom  are  parties  to  the  agreement,  to  authorize  and  require 
the  directors  and  managers  to  make  the  transfer.  The  property 
and  assets  of  the  corporation  could  only  be  transferred  by  a  cor- 
porate act,  and  the  agreement  could  not  in  this  respect,  be  carried 
into  effect,  other  than  by  such  corporate  act;  and  clearly  indicates 
that  the  purpose  of  the  stockholders  of  the  defendant,  in  becoming 
a  party  to  it,  was  to  affect  their  property  and  business  as  a  corpora- 
tion ;  in  other  words,  was  to  act  in  their  corporate,  and  not  in  their 
individual,  capacity. 


Applying  then  the  principle  that  a  corporation  is  simply  an 
association  of  natural  persons,  united  in  one  body  under  a  special 
denomination,  and  vested  by  the  policy  of  the  law  with  the  capacity 
of  acting  in  several  respects  as  an  individual,  and  disregarding 
the  mere  fiction  of  a  separate  legal  entity,  since  to  regard  it  in 
an  inquiry  like  the  one  before  us  would  be  subversive  of  the  purpose 
for  which  it  was  invented,  is  there,  upon  an  analysis  of  the  agree- 
ment, room  for  doubt  that  the  act  of  all  the  stockholders,  officers 
and  directors  of  the  company  in  signing  it,  should  be  imputed  to 
them  as  an  act  done  in  their  capacity  as  a  corporation?  We  think 
not,  since  thereby  all  the  property  and  business  of  the  company  is, 
and  was  intended  to  be,  virtually  transferred  to  the  Standard  Oil 
Trust,  and  is  controlled,  through  its  trustees,  as  effectually  as 


56  Industrial  Combinations  and  Trusts 

if  a  formal  transfer  had  been  made  by  the  directors  of  the  com- 
pany. 


It  therefore  follows,  as  we  think,  from  the  discussion  we  have 
given  the  subject,  that  where  all,  or  a  majority,  of  the  stockholders 
comprising  a  corporation,  do  an  act  which  is  designed  to  affect  the 
property  and  business  of  the  company,  and  which,  through  the 
control  their  numbers  give  them  over  the  selection  and  conduct  of 
the  corporate  agencies,  does  affect  the  property  and  business  of  the 
company,  in  the  same  manner  as  if  it  had  been  a  formal  resolution 
of  its  board  of  directors;  and  the  act  so  done  is  ultra  vires  of  the 
corporation  and  against  the  public  policy,  and  was  done  by  them  in 
their  individual  capacity  for  the  purpose  of  concealing  their  real 
purpose  and  object,  the  act  should  be  regarded  as  the  act  of  the 
corporation;  and,  to  prevent  the  abuse  of  corporate  power,  may  be 
challenged  as  such  by  the  state  in  a  proceeding  in  quo  warranto. 

2.  That  the  nature  of  the  agreement  is  such  as  to  preclude  the 
defendant  from  becoming  a  party  to  it,  is,  we  think,  too  clear  to 
require  much  consideration  by  us.  In  the  first  place,  whether  the 
agreement  should  be  regarded  as  amounting  to  a  partnership  be- 
tween the  several  companies,  limited  partnerships  and  individuals, 
who  are  parties  to  it,  it  is  clear  that  its  observance  must  subject 
the  defendant  to  a  control  inconsistent  with  its  character  as  a  cor- 
poration. Under  the  agreement  all  but  seven  of  the  shares  of 
the  capital  stock  of  the  company  have  been  transferred  by  the  real 
owners  to  the  trustees  of  the  trust,  who  hold  them  in  trust  for  such 
owners;  and  being  enjoined  by  the  terms  of  the  agreement  to  en- 
deavor to  have  "the  affairs"  of  the  several  companies  managed  in  a 
manner  most  conducive  to  the  interests  of  the  holders  of  the  trust 
certificates  issued  by  the  trust,  have  the  right,  in  virtue  of  their 
apparent  legal  ownership  and  by  the  terms  of  the  agreement,  to 
select  such  directors  of  the  company  as  they  may  see  fit,  nay  more, 
may  in  fact  select  themselves.  The  law  requires  that  a  corporation 
should  be  controlled  and  managed  by  its  directors  in  the  interest 
of  its  own  stockholders,  and  conformable  to  the  purpose  for  which 
it  was  created  by  the  laws  of  its  state.  By  this  agreement,  in- 
directly it  is  true,  but  none  the  less  effectually,  the  defendant  is 
controlled  and  managed  by  the  Standard  Oil  Trust,  an  association 
with  its  principal  place  of  business  in  New  York  City,  and  organ- 
ized for  a  purpose  contrary  to  the  policy  of  our  laws.    Its  object 


Judicial  Attack  on  the  Trust  57 

was  to  establish  a  virtual  monopoly  of  the  business  of  producing 
petroleum,  and  of  manufacturing,  refining  and  dealing  in  it  and 
all  its  products,  throughout  the  entire  country,  and  by  which  it 
might  not  merely  control  the  production,  but  the  price  at  its 
pleasure.  All  such  associations  are  contrary  to  the  policy  of  our 
state  and  void.  Salt  Co.  v.  Guthrie,  35  Ohio  St.  666;  Emery  v.  Ohio 
Candle  Co,  47  id.  320. 

3.  The  defendant  relies  upon  a  provision  in  section  6789,  Re- 
vised Statues,1  as  a  bar  to  the  action.    That  provision  is  as  follows: 

"Nothing  in  this  chapter  contained  shall  authorize  an  action 
against  a  corporation  for  forfeiture  of  charter,  unless  the  same  be 
commenced  within  five  years  after  the  act  complained  of  was  done 
or  committed." 

It  is  contended,  however,  by  counsel  for  the  plaintiff,  that  this 
section  does  not  apply  to  a  proceeding  instituted  on  behalf  of  the 
state  by  the  attorney  general  to  forfeit  the  charter  of  a  corpora- 
tion; that  it  was  only  intended  to  apply  to  like  proceedings  by 
prosecuting  attorneys.  The  argument  is  based  upon  what  is  claimed 
to  have  been  the  law  prior  to  the  revision,  and  that  there  could 
have  been  no  intention  to  change  it  in  this  regard  by  the  above 
provision.    We  cannot  adopt  this  conclusion. 

But  the  whole  of  §  6789,  Revised  Statutes,  is  not  quoted  by  the 
defendant;  it  further  proceeds:  "Nor  shall  an  action  be  brought 
against  a  corporation  for  the  exercise  of  a  power  or  franchise  under 
its  charter  which  it  has  used  and  exercised  for  a  term  of  twenty 
years."  Therefore  within  that  time  such  a  proceeding  may  be 
brought.  The  defendant,  as  we  have  shown,  in  making  and  en- 
tering into  the  trust  agreements,  exercised  a  power  for  which  it 
had  no  authority  under  the  laws  of  this  state,  and  is  continuing 
to  perform  the  agreement  on  its  part.  .  .  . 

Exhibit  2 
state  v.  nebraska  distilling  company* 

Maxwell,  J. 

This  is  an  action  of  quo  warranto  brought  in  this  court  to  obtain 

a  forfeiture  of  the  defendant's  corporate  franchise.    One  Woolsey 

1  Thus  in  original.— Ed.  2  29  Neb.  700;  46  N.  W.  155 


58  Industrial  Combinations  and  Trusts 

was  permitted  to  intervene  in  the  case.  An  answer  was  filed  by  the 
defendants  and  the  cause  referred  to  Judge  Pound  to  take  the 
testimony  and  find  the  issues  of  facts,  .  .  . 


Section  123  of  chapter  16,  Comp.  Stats.,  provides  that  "Any 
number  of  persons  may  be  associated  and  incorporated  for  the 
transaction  of  any  lawful  business,"  etc.  It  is  also  provided  in 
chapter  15  that  "So  much  of  the  common  law  of  England  as  is 
applicable,  and  not  inconsistent  with  the  constitution  of  the  United 
States,  with  the  organic  law  of  this  territory,  or  with  any  law  passed 
or  to  be  passed  by  the  legislature  of  this  territory,  is  adopted  and 
declared  to  be  law  within  said  territory."  These  provisions  of 
statute  were  passed  before  the  admission  of  the  state  into  the  Union 
and  have  continued  in  force  ever  since.  A  corporation  therefore 
can  only  be  organized  under  our  laws  for  a  lawful  purpose,  and  any 
acts  done  by  such  corporation  for  the  accomplishment  of  a  purpose 
not  lawful  is  unauthorized,  in  excess  of  its  powers,  and  therefore 
illegal  and  void.  The  acts  of  a  corporation,  to  be  unlawful,  need 
not  necessarily  be  mala  prohibita  or  malum  in  se,  although  such 
acts  are  illegal  in  all  cases,  but  any  act  of  a  corporation  which  by 
the  terms  of  its  charter  it  is  not  authorized  to  do,  is  in  excess  of  its 
powers  and  therefore  unlawful. 

Contracts  in  total  restraint  of  trade,  as  that  a  person  shall  not 
carry  on  his  business  anywhere  in  the  state,  are  void,  no  matter 
what  the  consideration  may  be,  because  the  effect  of  such  contract 
must  be  injurious  to  the  public.  The  early  cases  in  regard  to  con- 
tracts in  restraint  of  trade  were  reviewed  by  Parker,  Ch.  J.,  in 
Mitchel  v.  Reynolds,  1  P.  Wm.'s  181,  decided  in  171 1,  and  it  was 
held,  in  effect,  that  contracts  in  total  restraint  of  trade  were  void, 
and  that  contracts  in  partial  restraint  of  trade  were  also  void,  un- 
less there  was  a  sufficient  consideration  and  a  good  reason  for 
entering  into  the  contract.  In  Horner  v.  Ashford,  3  Bing.,  322, 
contracts  in  total  restraint  of  trade  were  held  to  be  void.  To  the 
same  effect  are  Homer  v.  Graves,  7  Bing.,  735;  Hayward  v.  Young, 
2  Chitty  R.,  407.  These  cases  have  generally  been  followed  in  this 
country.  A  well  considered  case  on  this  subject  is  Lange  v.  Werk, 
2  0.  St.,  520,  in  which  it  was  held  that  before  such  contract  can  be 
enforced,  it  must  appear  by  the  pleadings  and  proofs  that  the  re- 
straint is  partial,  that  it  is  reasonable,  and  founded  on  a  good  con- 
sideration, and  this  seems  to  be  the  law  at  the  present  time.    (Law- 


Judicial  Attack  on  the  Trust  59 

rcnce  v.  Kidder,  10  Barb.,  641;  Pierce  v.  Fuller,  8  Mass.,  223; Palmer 
v.  Stebbins,  3  Pick.,  188;  Whitney  v.  Clayton,  40  Me.,  231;  Nobles 
v.  Bales,  7  Cow.,  307;  Duffy  v.  Shockey,  11  Ind.,  71;  Bowser  v.  Bliss, 
7  Blackf.,  344;  Beard  v.  Dennis,  6  lnd.,  204;  Chappcl  v.  Brock-way 
21  Wend.,  158.) 

Whatever  tends  to  destroy  competition  and  create  a  monopoly 
is  contrary  to  public  policy  and  therefore  unlawful.  (Coal  Co  v 
CoalCo.,  68  Pa.  St.,  173;  Craft  v.  McConoughy,  79  111.,  346;  Railroad 
Company  v.  Collins,  40  Ga.,  582;  Hazelhurst  v.  Railroad  Co.,  43 
id.,  13;  Trans.  Co.  v.  Pipe  Line  Co.,  22  W.  Va.,  600;  People  v.  C.  G. 
&■  T.  Co.,  22  N.  E.  Rep.,  798;  Richardson  v.  Buhl,  43  N.  W.  Rep., 
1 102.)  In  the  latter  case  it  was  held  that  a  contract  in  furtherance 
of  a  monopoly  and  growing  out  of  transactions  in  connection  there- 
with, is  against  public  policy,  and  although  the  question  was  not 
raised  by  the  parties,  yet  the  court  of  its  own  motion  took  notice 
of  its  illegal  character  and  held  it  void.  .  .  . 


In  Salt  Co.  v.  Guthrie,  35  O.  S.,  666,  it  is  said:  "Public  policy  un- 
questionably favors  competition  in  trade  to  the  end  that  its  com- 
modities may  be  afforded  to  the  consumer  as  cheaply  as  possible, 
and  is  opposed  to  monopolies  which  tend  to  advance  market  prices 
to  the  injury  of  the  general  public,"  etc. 

In  Navigation  Co.  v.  Railway  Co.,  130  U.  S.,  1,  the  supreme  court 
of  the  United  States,  in  speaking  of  the  proper  construction  of 
articles  of  association  of  corporations  organized  under  general 
laws,  says:  "We  have  to  consider,  when  such  articles  become  the 
subject  of  construction,  that  they  are,  in  a  sense,  ex  parte.  Their 
formation  and  execution — what  shall  be  put  into  them,  as  well  as 
what  shall  be  left  out — do  not  take  place  under  the  supervision 
of  any  official  authority  whatever.  They  are  the  production  of 
private  citizens,  gotten  up  in  the  interest  of  the  parties  who  pro- 
pose to  become  corporators,  and  stimulated  by  their  zeal  for  the 
personal  advantage  of  the  parties  concerned  rather  than  the  general 
good.  .  .  .  These  articles,  which  necessarily  assume,  by  the  sole 
actions  of  the  corporators,  enormous  powers,  many  of  which  have 
been  heretofore  considered  of  a  public  character,  sometimes  affect- 
ing the  interests  of  the  public  very  largely  and  very  seriously,  do 
not  commend  themselves  to  the  judicial  mind  as  a  class  of  instru- 
ments requiring  or  justifying  any  very  liberal  construction.  Where 
the  question  is  whether  they  conform  to  the  authority  given  by 


6o  Industrial  Combinations  and  Trusts 

statute  in  regard  to  corporate  organizations,  it  is  always  to  be 
determine  upon  just  construction  of  the  powers  granted  therein, 
with  a  due  regard  for  all  the  other  laws  of  the  state  upon  that  sub- 
ject. .  .  .  The  manner  in  which  these  powers  shall  be  exercised, 
and  their  subjection  to  the  general  laws  of  the  state,  and  its  general 
principles  of  public  policy,  are  not  in  any  sense  enlarged  by  insert- 
ing in  the  articles  of  association  the  authority  to  depart  therefrom." 

This,  we  think  is  a  correct  construction  of  the  law  relating  to  such 
articles  and  we  adopt  the  same.  Alcohol  is  an  article  of  commerce. 
It  is  applied  to  a  thousand  uses  in  arts  and  manufactures.  The 
amount  which  is  rectified  and  used  as  intoxicating  drinks  forms 
but  a  very  small  part  of  the  quantity  actually  distilled,  and  being 
an  article  of  commerce,  any  contract  creating  a  monopoly  therein 
is  against  public  policy  and  void.  A  corporation  can  exercise  no 
powers  except  such  as  are  granted  to  it,  by  the  charter  under  which 
it  exists.  (Thomas  v.  R.  Co.  101  U.  S.,  71;  0.  Ry.  Co.  v.  0.  Ry.  Co., 
130  id.,  1.)  It  is  no  part  of  the  powers  of  the  Distilling  Company 
to  sell  all  its  property,  real  and  personal,  together  with  its  franchise 
and  powers  necessary  to  properly  carry  on  the  business.  (O.  Ry. 
Co.  v.  0.  Ry.  Co.,  supra.)  The  fact  that  the  corporation  has  author- 
ity to  put  an  end  to  its  existence  by  a  vote  of  a  majority  of  its  stock- 
holders, in  which  event  it  may  proceed  to  settle  up  its  affairs,  dispose 
of  its  property,  and  divide  its  capital  stock  and  surrender  its  charter 
to  the  state,  does  not  authorize  it  to  terminate  its  existence  by  a 
sale  and  disposal  of  all  its  property  and  rights.    (Id.) 

The  findings  in  this  case,  to  which  no  objection  is  made,  clearly 
show  that  the  object  of  the  Distilling  Company  in  entering  into  the 
illegal  combination  was  to  destroy  competition  and  create  a 
monopoly,  not  only  by  limiting  the  production  of  alcohol,  but  by 
dismantling  as  many  distilleries  as  the  trust  saw  fit,  absolutely 
prevent  the  manufacture  of  the  article  except  in  a  few  establish- 
ments controlled  by  the  trust,  and  thus  it  would  be  enabled  to  con- 
trol prices,  prevent  production,  and  create  a  monopoly  of  the  most 
offensive  character.  Any  contract  entered  into  with  such  an  object 
in  view  is,  under  the  laws  of  this  state,  null  and  void,  and  the  convey- 
ance from  the  Distilling  Company  to  the  trust  was  in  contravention 
of  the  authority  conferred  by  the  statutes  on  that  company  in  excess 
of  the  powers  granted  by  its  charter,  and  against  public  policy  and  void, 
and  no  title  passed  by  such  conveyance.1.  .  . 

•        •••«...»*•• 
1  Italics  are  the  editor's. 


Judicial  Attack  on  the  Trust  6i 

.  .  .  The  act  of  1889,  in  relation  to  trusts,  has  not  been  referred 
to,  and  its  application  to  this  case  will  be  further  considered. 

Exhibit  3 
people  v.  north  river  sugar  refining  company  * 

Finch,  J.  The  judgment  sought  against  the  defendant  is  one 
of  corporate  death.  The  State,  which  created,  asks  us  to  destroy; 
and  the  penalty  invoked  represents  the  extreme  rigor  of  the  law.  Its 
infliction  must  rest  upon  grave  cause,  and  be  warranted  by  material 
misconduct.  The  life  of  a  corporation  is  indeed  less  than  that  of 
the  humblest  citizen,  and  yet  it  envelopes  great  accumulations 
of  property,  moves  and  carries  in  large  volume  the  business  and 
enterprise  of  the  people,  and  may  not  be  destroyed  without  clear 
and  abundant  reason. 


Two  questions,  therefore,  open  before  us:  first,  has  the  defendant 
corporation  exceeded  or  abused  its  powers,  and,  second,  does 
that  excess  or  abuse  threaten  or  harm  the  public  welfare. 

.  .  .  We  find  disclosed  by  the  proof  that  it  has  become  an  in- 
tegral part  and  constituent  element  of  a  combination  which 
possesses  over  it  an  absolute  control,  which  has  absorbed  most  of 
its  corporate  functions,  and  dictates  the  extent  and  manner  and 
terms  of  its  entire  business  activity.  Into  that  combination, 
which  drew  into  its  control  sixteen  other  corporations  engaged  in 
the  refining  of  sugar,  the  defendant  has  gone,  in  some  manner  and 
by  some  process,  for  as  an  unquestionable  truth  we  find  it  there. 
All  its  stock  has  been  transferred  to  the  central  association  of  eleven 
individuals  denominated  a  "Board";  in  exchange  it  has  taken  and 
distributed  to  its  own  stockholders  certificates  of  the  board  carry- 
ing a  proportionate  interest  in  what  it  describes  as  its  capital  stock; 
the  new  directors  of  the  defendant  corporation  have  been  chosen 
by  the  board,  made  eligible  by  its  gift  of  single  shares,  and  liable 
to  removal  under  the  terms  of  their  appointment  at  any  moment 
of  independent  action.  It  has  lost  the  power  to  make  a  dividend, 
and  is  compelled  to  pay  over  its  net  earnings  to  the  master  whose 
servant  it  has  become.    Under  the  orders  of  that  master  it  has  ceased 

!i2i  N.  Y.  582;  24  N.  E.  834. 


62  Industrial  Combinations  and  Trusts 

to  refine  sugar,  and  by  so  much,  has  lessened  the  supply  upon  the 
market.  It  cannot  stir  unless  the  master  approves,  and  yet  is  en- 
titled to  receive  from  the  earnings  of  the  other  refineries,  massed  as 
profits  in  the  treasury  of  the  board,  its  proportionate  share  for 
division  among  its  own  stockholders  holding  the  substituted  cer- 
tificates. In  return  for  this  advantage  it  has  become  liable  to  be 
mortgaged,  not  for  its  own  corporate  benefit  alone,  but  to  supply 
with  funds  the  controlling  board  when  reaching  out  for  other  and 
coveted  refineries.  No  one  can  look  these  facts  fairly  in  the  face 
without  being  compelled  to  say  that  the  defendant  is  in  the  com- 
bination and  in  to  stay.  Indeed,  so  much  is  with  great  frankness 
admitted  on  the  part  of  the  appellant.  Its  counsel  concedes  that 
the  stock  was  transferred  "  to  the  board  mentioned  in  the  agreement 
and  on  the  terms  and  for  the  purposes  mentioned  in  the  agreement; 
and  that  this  action  effectually  lodged  the  control  of  the  defendant 
company,  so  far  as  such  control  can  be  secured  by  the  voting  power, 
in  that  board." 


The  combination,  therefore,  framed  by  the  deed  was  a  trust;  and, 
if  created  by  the  corporations,  or  in  any  respect  the  consequence 
or  product  of  their  action,  some  inevitable  results  would  be  certain 
to  follow.  But  here  we  encounter  the  stronghold  of  the  appellant's 
argument  which  is,  that  if  the  corporations  are  in  some  manner  in 
the  combination,  they  are  there  solely  as  the  result  of  a  contract 
other  than  their  own;  are  there  without  corporate  action  on  their 
part;  and  so  are  sufferers  and  not  sinners.  The  reasoning  leading 
to  that  result  is  so  severely  technical  as  to  have  suggested  a  jus- 
tification almost  reminding  one  of  an  apology.  We  are  called  upon 
to  sever  the  corporation,  the  abstract  legal  entity,  from  the  living 
and  acting  corporators;  as  it  were,  to  separate  in  our  thought  the 
soul  from  the  body,  and,  admitting  the  sins  of  the  latter  to  ad- 
judge that  the  former  remains  pure. 


...  I  think  there  may  be  actual  corporate  conduct  which  is  not 
formal  corporate  action ;  and  where  that  conduct  is  directed  or  pro- 
duced by  the  whole  body,  both  of  officers  and  stockholders,  by 
every  living  instrumentality  which  can  possess  and  wield  the  cor- 
porate franchise,  that  conduct  is  of  a  corporate  character,  and  if 
illegal  and  injurious  may  deserve  and  receive  the  penalty  of  disso- 


Judicial  Attack  on  the  Trust 

lution.  There  always  is,  and  there  always  must  be,  corporate 
conduct  without  formal  corporate  action  where  the  thing  challenged 
is  an  omission  to  act  at  all.  A  corporation  organized  in  the  public 
interest,  with  a  view  to  the  public  welfare,  and  in  the  expectation 
of  benefit  to  the  community,  which  is  the  motive  of  the  State' 
grant,  may  accept  the  franchise  and  hold  it  in  sullen  silence,  doing 
nothing,  resolving  nothing,  furnishing  no  formal  corporate  action 
upon  which  the  State  can  put  its  finger  and  say,  this  the  corporation 
has  done  by  the  agency  through  which  it  is  authorized  to  act. 
That  is  corporate  conduct  which  the  State  may  question  and  punish 
without  searching  for  a  formal  corporate  act.  The  directors  of 
a  corporation,  its  authorized  and  active  agency,  may  see  the  stock- 
holders perverting  its  normal  purposes  by  handing  it  over,  bound 
and  helpless,  to  an  irresponsible  and  foreign  authority,  and  omit 
all  action  which  they  ought  to  take,  offer  no  resistance,  make  no 
protest,  but  silently  acquiesce  as  directors  in  the  wrong  which  as 
stockholders  they  have  themselves  helped  to  commit.  That  again 
is  corporate  conduct,  though  there  be  an  utter  absence  of  directors' 
resolutions.  It  is  asked  what  they  could  have  done  to  prevent 
the  organization  of  the  trust;  how  they  were  negligent  and  unfaith- 
ful as  corporate  officers  by  their  omission  to  act;  what  good  a 
mere  protest  or  objection  would  have  accomplished ;  what  effective 
form  their  resistance  could  have  assumed?  The  answer  is  that 
they  could  have  refused  to  recognize  the  illegal  trust  transfer  of  the 
stock;  they  could  have  declined  to  register  the  new  ownership 
upon  their  stock-books;  they  could  have  said,  and  acted  upon 
their  words,  that  the  original  stockholders  remained  not  only 
the  beneficial,  but  the  legal  owners  of  the  stock;  and,  if  the  board 
trustees  appealed  to  the  law,  the  resisting  directors  could  chal- 
lenge the  legality  of  the  transfer  as  moulded  by  the  combination 
agreement,  and  might  have  defeated  the  trust  and  shattered  it  at 
the  outset  of  its  career.  So  much  they  could  have  done  as  corpo- 
rate officers;  so  much  it  was  their  duty  to  have  done  as  repre- 
sentatives of  the  corporation;  and  when,  beyond  that  corporate 
neglect,  they  recognized  the  validity  of  the  stock  transfers  in  trust, 
put  the  new  and  unlawful  ownership  upon  their  books,  and  accepted 
its  votes  in  the  choice  of  new  directors  who  were  to  throttle  the  in- 
dependence of  the  corporation  and  chain  it  to  the  will  of  the  trust, 
I  think  we  must  shut  our  eyes  in  wilful  blindness  if  we  fail  to  see 
both  corporate  neglect  and  corporate  action. 


64  Industrial  Combinations  and  Trusts 

The  abstract  idea  of  a  corporation,  the  legal  entity,  the  im- 
palpable and  intangible  creation  of  human  thought  is  itself  a  fiction, 
and  has  been  appropriately  described  as  a  figure  of  speech.  It 
serves  very  well  to  designate  in  our  minds  the  collective  action 
and  agency  of  many  individuals  as  permitted  by  the  law;  and  the 
substantial  inquiry  always  is  what  in  a  given  case  has  been  that  col- 
lective action  and  agency.  As  between  the  corporation  and  those 
with  whom  it  deals,  the  manner  of  its  exercise  usually  is  material, 
but  as  between  it  and  the  State,  the  substantial  inquiry  is  only 
what  that  collective  action  and  agency  has  done,  what  it  has,  in  fact, 
accomplished,  what  is  seen  to  be  its  effective  work,  what  has  been 
its  conduct.  It  ought  not  to  be  otherwise.  The  State  gave  the 
franchise,  the  charter,  not  to  the  impalpable,  intangible  and  al- 
most nebulous  fiction  of  our  thought,  but  to  the  corporators,  the 
individuals,  the  acting  and  living  men,  to  be  used  by  them,  to  re- 
dound to  their  benefit,  to  strengthen  their  hands  and  add  energy 
to  their  capital.  If  it  is  taken  away,  it  is  taken  from  them  as 
individuals  and  corporators,  and  the  legal  fiction  disappears.  The 
benefit  is  theirs,  the  punishment  is  theirs,  and  both  must  attend 
and  depend  upon  their  conduct;  and  when  they  all  act,  collectively, 
as  an  aggregate  body,  without  the  least  exception,  and  so  acting, 
reach  results  and  accomplish  purposes  clearly  corporate  in  their 
character,  and  affecting  the  vitality,  the  independence,  the  util- 
ity, of  the  corporation  itself,  we  cannot  hesitate  to  conclude  that 
there  has  been  corporate  conduct  which  the  state  may  review,  and 
not  be  defeated  by  the  assumed  innocence  of  a  convenient  fiction. 


It  remains  to  determine  whether  the  conduct  of  the  defendant 
in  participating  in  the  creation  of  the  trust,  and  becoming  an  el- 
ement of  it  was  illegal  and  tended  to  the  public  injury  and  we  may 
consider  the  two  questions  together  and  without  formal  separation. 

It  is  quite  clear  that  the  effect  of  the  defendant's  action  was  to 
divest  itself  of  the  essential  and  vital  elements  of  its  franchise  by 
placing  them  in  trust;  to  accept  from  the  State  the  gift  of  corporate 
life  only  to  disregard  the  conditions  upon  which  it  was  given;  to 
receive  its  powers  and  privileges  merely  to  put  them  in  pawn; 
and  to  give  away  to  an  irresponsible  board  its  entire  independence 
and  self-control.  When  it  had  passed  into  the  hands  of  the  trust, 
only  a  shell  of  a  corporation  was  left  standing,  as  a  seeming  obe- 
dience to  the  law,  but  with  its  internal  structure  destroyed  or  re- 


Judicial  Attack  on  the  Trust  65 

moved.  Its  stockholders,  retaining  their  beneficial  interest,  have 
separated  from  it  their  voting  power,  and  so  parted  with  the  control 
which  the  charter  gave  them  and  the  State  required  them  to  exer- 
cise. It  has  a  board  of  directors  nominally  and  formally  in  office, 
but  qualified  by  shares  which  they  do  not  own,  and  owing  their 
official  life  to  the  board  which  can  end  their  power  at  any  moment 
of  disobedience.  It  can  make  no  dividends  whatever  may  be  its 
net  earnings,  and  must  incumber  its  property  at  the  command  of 
its  master,  and  for  purposes  wholly  foreign  to  its  own  corporate 
interests  and  duties.  At  the  command  of  that  master  it  has  ceased 
to  refine  sugar,  and  without  any  doubt  for  the  purpose  of  so  far 
lessening  the  market  supply  as  to  prevent  what  is  termed  "over- 
production." In  all  these  respects  it  has  wasted  and  perverted 
the  privileges  conferred  by  the  charter,  abused  its  powers,  and 
proved  unfaithful  to  its  duties.  But  graver  still  is  the  illegal  action 
substituted  for  the  conduct  which  the  State  has  a  right  to  expect 
and  require.  It  has  helped  to  create  an  anomalous  trust  which  is, 
in  substance  and  effect,  a  partnership  of  twenty  separate  cor- 
porations. The  State  permits  in  many  ways  an  aggregation  of 
capital,  but  mindful  of  the  possible  dangers  to  the  people,  over- 
balancing the  benefits,  keeps  upon  it  a  restraining  hand  and  main- 
tains over  it  a  prudent  supervision,  where  such  aggregation  de- 
pends upon  its  permission  and  grows  out  of  its  corporate  grants. 
It  is  a  violation  of  law  for  corporations  to  enter  into  a  partnership. 
(N.  Y.  &•  5.  C.  Co.  v.  F.  Bank,  7  Wend.  412;  Clearwater  v.  Meredith, 
1  Wall.  29;  Whittenton  Mills  v.  Upton,  10  Gray,  596.) 


.  .  .  It  is  said,  however,  that  a  consolidation  of  manufacturing 
corporations  is  permitted  by  the  law,  and  that  the  trust  or  com- 
bination or  partnership,  however  it  may  be  described,  amounts  only 
to  a  practical  consolidation  which  public  policy  does  not  forbid  be- 
cause the  statute  permits  it.  (Laws  of  1867,  chap.  960;  Laws  of  1884, 
chap.  367.)  The  refineries  did  not  avail  themselves  of  that  statute. 
They  chose  to  disregard  it,  and  to  reach  its  practical  results  with- 
out subjection  to  the  prudential  restraints  with  which  the  State 
accompanied  its  permission.  If  there  had  been  a  consolidation 
under  the  statute,  one  single  corporation  would  have  taken  the 
place  of  the  others  dissolved.  They  would  have  disappeared 
utterly,  and  not,  as  under  the  trust,  remained  in  apparent  existence 
to  threaten  and  menace  other  organizations  and  occupy  the  ground 


66  Industrial  Combinations  and  Trusts 

which  otherwise  would  be  left  free.  Under  the  statute  the  resultant 
combination  would  itself  be  a  corporation  deriving  its  existence  from 
the  State,  owing  duties  and  obligations  to  the  State,  and  subject  to 
the  control  and  supervision  of  the  State,  and  not,  as  here,  an  unin- 
corporated board,  a  colossal  and  gigantic  partnership,  having  no 
corporate  functions  and  owing  no  corporate  allegiance.  Under  the 
statute  the  consolidated  company  taking  the  place  of  the  separate 
corporations  could  have  as  capital  stock  only  an  amount  equal 
to  the  fair  aggregate  value  of  the  rights  and  franchises  of  the  com- 
panies absorbed ;  and  not  as  here  a  capital  stock  double  that  value 
at  the  outset  and  capable  of  an  elastic  and  irresponsible  increase. 
The  difference  is  very  great  and  serves  further  to  indicate  the  in- 
herent illegality  of  the  trust  combination. 


And  so  we  have  reached  our  conclusion,  and  it  appears  to  us 
to  have  been  established,  that  the  defendant  corporation  has  vio- 
lated its  charter  and  failed  in  the  performance  of  its  corporate 
duties,  and  that  in  respects  so  material  and  important  as  to  justify 
a  judgment  of  dissolution.  Having  reached  that  result,  it  becomes 
needless  to  advance  into  the  wider  discussion  over  monopolies 
and  competition  and  restraint  of  trade  and  the  problems  of  political 
economy.  Our  duty  i?  to  leave  them  until  some  proper  emergency 
compels  their  consideration.  Without  either  approval  or  disap- 
proval of  the  views  expressed  upon  that  branch  of  the  case  by  the 
courts  below,  we  are  enabled  to  decide  that  in  this  State  there  can 
be  no  partnerships  of  separate  and  independent  corporations, 
whether  directly,  or  indirectly  through  the  medium  of  a  trust; 
no  substantial  consolidations  which  avoid  and  disregard  the  statu- 
tory permissions  and  restraints,  but  that  manufacturing  corpora- 
tions must  be  and  remain  several  as  they  were  created,  or  one  under 
the  statute. 

The  judgment  appealed  from  should  be  affirmed  with  costs. 

All  concur. 


CHAPTER  V 

THE  HOLDING   COMPANY 

NOTE 

Long  before  the  attack  on  the  trust  form  of  combination  had 
ceased,  the  problem  of  the  type  of  combination  which  should  suc- 
ceed it  had  been  solved.  Until  about  1870  the  weight  of  English 
authority  had  been  against  the  power  of  one  corporation  or  company 
to  become  a  shareholder  in  another,  unless  such  power  should  have 
been  expressly  conferred.  In  this  country  the  courts  had  inclined 
to  the  same  view  of  the  matter.  In  numerous  cases,  in  the  State 
courts,  it  had  been  repeatedly  held  that  no  corporation  had  the  im- 
plied right  to  purchase  the  shares  of  another  company  for  purposes 
of  control,  although  it  might  come  into  possession  of  such  stock 
as  security  for  a  debt  or,  in  some  cases,  if  the  transaction  could  be 
regarded  as  one  reasonable  or  necessary  for  effectuating  the  objects 
for  which  the  company  was  incorporated.  In  the  Federal  courts, 
a  similar  attitude  was  taken. 

No  more  than  the  implied  right  to  hold  the  stock  of  another  cor- 
poration existed  did  any  statutory  enactments  prior  to  1889  author- 
ize such  procedure.  In  that  year,  however,  the  State  of  New  Jersey 
passed  the  noteworthy, — or  notorious, — amendment  to  her  cor- 
poration law  permitting  such  action,  a  step  in  which  she  was 
subsequently  followed  by  other  states  as  well.  The  exhibits  in 
this  group  have  been  designed  to  explain  this  development. — Ed. 

GROUP  1 
power  of  one  corporation  to  hold  stock  in  another 

Exhibit  i 

de  la  vergne  refrigerating  machine  company  v.  german  sav- 
ings institution  1 

(Supreme  Court  of  the  United  States,  October  30,  1899.) 
Statement  by  Mr.  Justice  Brown: 

1  175  U.  S.,  40. 

67 


68  Industrial  Combinations  and  Trusts 

This  was  a  consolidation  of  eight  actions  brought  by  the  German 
Savings  Institution  and  seven  other  plaintiffs,  in  the  Circuit  Court 
of  the  city  of  St.  Louis,  against  the  De  La  Vergne  Refrigerating 
Company  and  John  C.  De  La  Vergne,  its  president  and  principal 
stockholder,  personally,  for  a  failure  to  deliver  to  plaintiffs  certain 
stock  in  the  Refrigerating  Company. 

The  principal  question  in  this  case  is  whether,  under  the  laws 
of  New  York  providing  for  the  organization  of  manufacturing  cor- 
porations, such  corporations  are  authorized  to  purchase  the  stock 
of  a  rival  corporation  for  the  purpose  of  suppressing  competition 
and  obtaining  the  management  of  such  corporation. 

The  facts  of  the  case  are  substantially  as  follows:  The  Con- 
solidated Ice  Machine  Company  (hereafter  referred  to  as  the  Con- 
solidated Company)  was  a  corporation  organized  under  the  laws  of 
Illinois,  and  was  engaged  in  the  business  of  manufacturing  and  sell- 
ing refrigerating  and  ice-making  machines.  The  entire  amount 
of  issued  stock  of  such  corporation  was  $100,000,  held  in  various 
proportions  by  the  plaintiffs  in  this  consolidated  cause.  Having 
become  insolvent,  the  company,  on  October  14,  1890,  made  an 
assignment  under  the  general  laws  of  Illinois,  for  the  benefit  of 
creditors,  to  one  Jenkins,  who,  at  the  date  of  the  contract  sued  upon, 
was  engaged  in  winding  up  its  business. 

However  this  may  be,  subsequently  to  the  assignment,  and  on 
April  16,  1 89 1,  the  company  itself,  by  its  president  as  party  of 
the  first  part,  and  its  stockholders  as  parties  of  the  second  part, 
entered  into  an  agreement  with  the  De  La  Vergne  Refrigerating 
Machine  Company,  a  corporation  organized  under  the  laws  of 
New  York  (hereinafter  called  the  Refrigerating  Company,)  as 
party  of  the  third  part,  and  John  C.  De  la  Vergne,  of  the  State  of 
New  York,  president  of  that  company,  as  party  of  the  fourth  part. 
This  agreement  is  the  basis  of  the  action.  After  reciting  that  the 
Refrigerating  Company  was  willing  to  acquire  such  right  as  the 
Consolidated  Company  and  its  stockholders  could  assign  in  and 
to  the  assets  of  such  company;  that  under  the  laws  of  Illinois  the 
Consolidated  Company  was  not  entitled  to  the  possession  of  its 
assets  in  the  hands  of  the  assignee  until  its  obligations  had  been 
discharged;  that  the  Refrigerating  Company  was  incorporated 
with  a  stock  of  $350,000  when  its  assets  were  worth  $1,400,000; 


The  Holding  Company  69 

and  that  its  stockholders  were  considering  a  plan  of  increasing  the 
stock  to  $2,000,000,  of  which  $1,000,000  was  to  be  turned  over  to 
the  Consolidated  Company  under  the  terms  of  the  agreement: 

Therefore,  in  view  of  these  facts,  the  Consolidated  Company 
and  its  stockholders  covenanted  with  the  Refrigerating  Company 
and  its  president,  De  la  Vergne,  to  sell  and  convey  unto  the  Re- 
frigerating Company  all  their  right,  title  and  interest  in  and  to  the 
assets  of  the  party  of  the  first  part,  subject  to  the  payment  of  its 
obligations,  and  subject  to  the  custody  thereof  in  the  legal  custodian, 
R.  E.  Jenkins,  assignee  as  aforesaid. 

The  second  clause  contained  a  covenant  to  issue  to  the  stock- 
holders of  the  Consolidated  Company  fully  paid  up  stock  in  the 
Refrigerating  Company  to  the  amount  of  $100,000  in  certain  speci- 
fied proportions  to  each  stockholder. 

By  the  fourth  clause,  the  stockholders  agreed  within  ten  days 
from  the  date  of  the  agreement  to  assign  to  De  la  Vergne,  for  the 
benefit  of  the  Refrigerating  Company,  all  stock  of  the  insolvent 
company  which  had  been  issued,  and  which  they  guaranteed  had 
been  paid  in  full;  and  within  sixty  days  thereafter  the  Refrigerating 
Company  and  its  president  agreed  to  issue  and  deliver  to  the  stock- 
holders of  the  Consolidated  Company  stock  in  the  Refrigerating 
Company  to  the  amount  of  $100,000. 

By  the  fifth  clause,  the  stockholders  in  the  Consolidated  Com- 
pany covenanted  to  accept  in  lieu  of  the  stock  of  the  Refrigerating 
Company,  $100,000  in  cash,  at  the  option  of  De  la  Vergne,  the 
president  of  the  company. 

By  the  seventh  clause,  the  stockholders  of  the  Consolidated  Com- 
pany agreed  that  for  a  period  of  ten  years  they  would  not  enter 
into  or  become  engaged  in  the  selling  or  making  of  refrigerators 
or  ice  machines,  directly  or  indirectly,  within  the  United  States, 
excepting  the  state  of  Montana. 


.  .  .  There  was  also  a  covenant  that  the  Consolidated  Company 
would  not  engage  in  a  similar  business  within  ten  years  from  the  date 
of  the  contract.  The  Refrigerating  Company,  however,  did  not  avail 
itself  of  this  opportunity  to  compromise  with  the  creditors  of  the 
Consolidated  Company,  but  allowed  the  assignee  to  dispose  of  the 
assets,  which,  on  a  forced  sale,  lacked  $150,000  of  being  sufficient 
to  pay  the  debts  of  the  Consolidated  Company. 


70  Industrial  Combinations  and  Trusts 

But  as  the  powers  of  corporations,  created  by  legislative  act, 
are  limited  to  such  as  the  act  expressly  confers,  and  the  enumera- 
tion of  these  implies  the  exclusion  of  all  others,  it  follows  that,  un- 
less express  permission  be  given  to  do  so,  it  is  not  within  the  general 
powers  of  a  corporation  to  purchase  the  stock  of  other  corporations 
for  the  purpose  of  controlling  their  management. 


Not  only  is  this  true  as  a  general  rule,  but  by  the  law  of  the 
State  of  New  York,  under  which  this  corporation  was  organized, 
i.  e.  "  An  act  to  authorize  the  formation  of  corporations  for  manu- 
facturing, mining,  mechanical  and  chemical  purposes,"  passed 
February  17,  1848,  it  was  declared  in  section  eight  that  "it  shall  not 
be  lawful  for  such  company  to  use  any  of  their  funds  for  the  pur- 
chase of  any  stock  in  any  other  corporation."  This  language  is 
clear  and  explicit,  and  evidently  covers  purchases  of  stock  in  other 
corporations,  whether  engaged  in  the  same  or  different  business. 

In  this  connection,  however,  our  attention  is  called  to  an  act 
passed  by  the  legislature  of  New  York,  June  7,  1853,  (chapter  333,) 
amendatory  of  the  act  of  1848,  the  second  section  of  which  enacts 
that  "the  trustees  of  such  company  may  purchase  mines,  manu- 
factories and  other  property  necessary  for  their  business,  and  issue 
stock  to  the  amount  of  the  value  thereof  in  payment  therefore."  * 
The  position  of  the  plaintiffs  in  this  connection  is  that,  under  the 
authority  to  purchase  "  other  property  necessary  for  their  business," 
it  was  competent  for  manufacturing  corporations  to  purchase  the 
stock  of  other  similar  corporations.  But  we  do  not  so  read  the  act. 
Its  evident  object  was  to  permit  manufacturing  corporations  to 
purchase  mines  from  which  they  could  extract  their  own  ore,  or 
manufactories  of  raw  material,  such  as  pig  iron  or  lumber,  which 
could  furnish  to  them  material  to  be  worked  up  into  their  own 
products;  and  in  case  such  purchases  involved  a  larger  outlay  than 
their  present  resources  would  justify,  to  issue  new  stock  "to  the 
amount  of  the  value  thereof  in  payment  therefor."  But  there  is 
nothing  to  indicate  that  the  legislature  intended  to  authorize  them 
to  purchase  the  stock  of  competing  corporations,  or  corporations 
engaged  in  other  business.  It  is  only  property  necessary  for  their 
own  current  business  they  were  authorized  to  purchase. 

Another  act  amending  the  general  corporation  act  of  1848,  passed 
April  28,  1866,  (chapter  838,)  was  intended  for  a  similar  purpose. 
1  Thus  in  original. — Ed. 


The  Holding  Company  71 

By  section  three  it  was  enacted  that  "It  shall  be  lawful  for  any 
manufacturing  company  heretofore  or  hereafter  organized  under 
the  provisions  of  this  act  or  the  act  hereby  amended,  to  hold  stock 
in  the  capital  of  any  corporation  engaged  in  the  business  of  mining, 
manufacturing  or  transporting  such  materials  as  are  required  in  the 
prosecution  of  the  business  of  such  company,  so  long  as  they  shall 
furnish  or  transport  such  materials  for  the  use  of  such  company, 
and  for  two  years  thereafter  and  no  longer;  and  the  trustees  of  such 
company  shall  have  the  same  power  with  respect  to  the  purchase  of 
such  stock  and  issuing  stock  therefor  as  are  now  given  by  law  with 
respect  to  the  purchase  of  mines,  manufactories  and  other  property 
necessary  to  the  business  of  manufacturing  companies.  But  the  cap- 
ital stock  of  such  companyshall  not  be  increased  without  the  consent 
of  the  owners  of  two  thirds  of  the  stock,  to  be  obtained  as  provided 
by  sections  twenty-one  and  twenty-two  of  the  act  hereby  amended." 

The  object  of  this  act  was  evidently  much  the  same  as  that  of 
the  prior  act  of  1853,  that  is,  to  enable  manufacturing  corporations 
to  produce  their  own  ore  and  manufacture  their  own  raw  materials. 
To  meet  the  exigencies  of  this  statute  it  is  necessary  that  the  com- 
pany, whose  stock  is  purchased,  should  at  the  time  of  the  purchase 
be  engaged  in  the  business  of  mining,  manufacturing  or  transport- 
ing such  materials  as  are  required  in  the  prosecution  of  the  business 
of  the  purchasing  company;  and  the  right  is  limited  to  such  time 
as  they  shall  furnish  or  transport  such  materials  for  the  use  of  such 
company,  and  for  two  years  thereafter.  It  clearly  has  no  applica- 
tion to  a  case  where  a  manufacturing  company  purchases  the  stock 
of  an  insolvent  rival  concern  which  has  ceased  to  do  business,  and 
whose  stock  is  bought  for  the  evident  purpose  of  preventing  a 
reorganization,  and  of  obtaining  its  patronage. 

In  the  Revised  Statutes  of  New  York  of  1889,  c.  18,  vol.  3,  p.  1959, 
there  is  also  an  act,  to  which  our  attention  is  called  by  a  supplemen- 
tal brief,  permitting  manufacturing  companies  to  increase  or  dimin- 
ish their  capital  stock  to  any  amount  which  may  be  sufficient  and 
proper  for  the  purposes  of  the  corporation,  and  also  to  extend  their 
business  to  any  other  manufacturing  business  subject  to  the  provi- 
sions of  the  act. 

That  neither  of  these  acts  were  intended  to  give  authority  to 
corporations  to  purchase  stock  of  other  corporations  engaged  in  the 
same  business  is  evident  from  a  subsequent  act  approved  June  7, 
1890,  to  take  effect  May  1,  1 891,  the  fortieth  section  of  which  pro- 
vides that ".  .  .  no  corporation  shall  use  any  of  its  funds  in  the 


72  Industrial  Combinations  and  Trusts 

purchase  of  any  stock  of  its  own  or  any  other  corporation,  unless 
the  same  shall  have  been  bona  fide  pledged,  hypothecated  or  trans- 
ferred to  it,  by  way  of  security  for,  or  in  satisfaction  or  part  satis- 
faction of,  a  debt  previously  contracted  in  the  course  of  its  business, 
or  shall  be  purchased  by  it  at  sales  upon  judgments,  orders  or  de- 
crees which  shall  be  obtained  for  such  debts  or  in  the  prosecution 
thereof.  Any  domestic  corporation  transacting  business  in  this 
State,  and  also  in  other  States  or  foreign  countries,  may  invest  its 
funds  in  the  stocks,  bonds  or  securities  of  other  corporations  own- 
ing lands  in  this  State  or  other  States,  if  dividends  have  been  paid 
on  such  stocks  continuously  for  three  years  immediately  before 
such  loans  are  made,  or  if  the  interest  on  such  bonds  or  securities 
is  not  in  default,  and  such  stock,  bonds  and  securities  shall  be  con- 
tinuously of  a  market  value  twenty  per  cent  greater  than  the  amount 
loaned  or  continued  thereon." 

Had  the  former  acts  given  the  unlimited  authority  to  purchase  in- 
sisted upon  by  the  plaintiffs,  this  act  would  have  been  entirely  un- 
necessary, and  instead  of  enlarging  the  power  previously  possessed, 
would  have  operated  as  a  restriction  upon  it.  That  this  act  of  1890 
does  not  assist  the  plaintiffs  is  evident  not  only  from  the  fact  that 
the  act  did  not  take  effect  until  after  the  contract  was  made,  but 
from  the  further  fact  that  it  merely  authorizes  corporations  to  invest 
their  funds  in  the  stocks,  bonds  or  securities  of  other  corporations  if 
dividends  have  been  paid  for  three  years  before  the  loans  are  made; 
or  if  the  interest  on  their  securities  is  not  in  default,  and  such  se- 
curities are  worth  twenty  per  cent  greater  than  the  amount  loaned 
thereon.  This  act  evidently  refers  to  loans  and  not  to  purchases, 
since  the  section  expressly  provides  that  no  corporation  shall  use  its 
funds  in  the  purchase  of  any  stock,  either  of  its  own  or  any  other 
corporation,  unless  by  way  of  security  for  antecedent  debts. 

The  truth  is,  that  the  legislature  of  New  York,  instead  of  repeal- 
ing the  prohibitory  clause  in  the  original  act  of  1848,  concerning 
the  purchase  of  stock  in  other  corporations,  has  modified  it  but 
slightly,  by  slow  degrees,  and  in  special  cases,  to  enable  a  manu- 
facturing corporation  to  control  more  perfectly  its  own  legitimate 
business  operations,  and  has  thereby  manifested  the  more  clearly 
its  intention  to  preserve  the  original  inhibition. 

Our  conclusion  upon  this  branch  of  the  case  is  that,  as  the  main, 
if  not  the  sole,  object  of  the  purchase  from  the  plaintiffs  was  to  ac- 
quire their  stock  in  the  Consolidated  Company,  such  purchase 
was  ultra  vires  the  Refrigerating  Company. 


The  Holding  Company  73 


GROUP  2 

difference  between  the  trust  and  tid2  holding  company 

Exhibit  i 

standard  oil  changes  from  a  trust  to  a  holding  company.1 
i.  On  March  2,  1892,  a  judgment  was  rendered  in  a  suit  brought 
in  the  Supreme  Court  of  Ohio  by  the  State  of  Ohio  on  the  relation 
of  the  Attorney  General,  against  the  Standard  Oil  Co.  (of  Ohio), 
after  hearing  upon  Bill  and  Answer.  This  decision  rendered  it 
inadvisable  to  continue  the  form  of  organization  provided  by  the 
Trust  Agreement  for  the  management  of  the  common  properties. 
The  certificate  holders  thereupon  adopted  the  resolution  set  forth 
on  pages  64-5  of  the  Government's  Bill  of  Complaint,  providing 
for  the  dissolution  of  the  Trust.  This  resolution  was  adopted  pur- 
suant to  Article  21st  of  the  Trust  Agreement. 

Up  to  the  time  of  the  adoption  of  the  resolution  for  the  disso- 
lution of  the  Trust  in  1892,  many  of  the  companies  named  in  the 
Trust  Agreement,  and  most  of  those  organized  or  acquired  sub- 
sequent to  the  formation  of  the  Trust,  had  continued  as  separate 
corporate  organizations.  At  that  time  a  great  many  of  these  or- 
ganizations which  no  longer  served  any  particular  purpose  were 
dissolved. 


2.  The  stocks  of  a  number  of  important  companies  that  had  been 
held  by  the  trustees  were  transferred  directly  to  the  Standard 
Oil  Company  (New  Jersey)  and  have  ever  since  been  held  by  that 
Company.  Among  the  stocks  that  have  been  so  held  in  continuous 
ownership  by  the  Standard  Oil  Co.  (New  Jersey)  are  the  Chese- 
brough  Manufacturing  Company,  Continental  Oil  Company, 
Galena  Oil  Works,  Limited,  Signal  Oil  Works,  Limited,  Standard 
Oil  Company  (Iowa),  Vacuum  Oil  Company  and  the  Waters- 
Pierce  Oil  Company,  (Pet.  Ex.  253,  vol.  7,  p.  448). 

3.  The  changes  effected  in  the  companies  about  the  time  of 
the  resolution  for  the  dissolution  of  the  Trust  left  in  the  hands  of  the 
Trustees  stock  of  the  following  companies: 

1  United  States  of  America  v.  Standard  Oil  Company  (N.  J.)  et  al.  Brief  for 
Defendants  on  the  Facts,  In  the  Circuit  Court  of  the  United  States  for  the 
Eastern  Division  of  the  Eastern  Judicial  District  of  Missouri,  Vol.  I,  pp.  76-85. 


74  Industrial  Combinations  and  Trusts 

Anglo-American  Oil  Co.  Ltd. 

Atlantic  Refining  Co. 

Buckeye  Pipe  Line  Co. 

Eureka  Pipe  Line  Co. 

Forest  Oil  Co. 

Indiana  Pipe  Line  Co. 

National  Transit  Co. 

New  York  Transit  Co. 

Northern  Pipe  Line  Co. 

Northwestern  Ohio  Natural  Gas  Co. 

Ohio  Oil  Co. 

Solar  Refining  Co. 

Southern  Pipe  Line  Co. 

South  Penn  Oil  Co. 

Standard  Oil  Co.     (New  Jersey) 

Standard  Oil  Co.     (Indiana) 

Standard  Oil  Co.     (Kentucky) 

Standard  Oil  Co.     (of  New  York) 

Standard  Oil  Co.     (of  Ohio) 

Union  Tank  Line  Co. 

Of  these  twenty  companies,  only  three  antedate  the  Trust  agree- 
ment of  1882,  to  wit,  the  Standard  Oil  Co.  (of  Ohio)  itself,  the  At- 
lantic Refining  Co.,  all  the  stock  of  which  had  been  held  for  the 
benefit  of  the  Standard  Oil  stockholders  since  1874,  and  the  Na- 
tional Transit  Co.,  which  had  been  organized  by  Standard  Oil 
interests.  Of  the  remaining  seventeen  companies,  six  were  pipe 
line  companies,  all  of  which  had  been  organized  and  their  properties 
created  by  Standard  Oil  interests  for  the  common  benefit  of  the 
certificate  holders.  The  Anglo-American  Oil  Co.,  Ltd.,  the  Solar 
Refining  Co.,  the  Standard  Oil  Co.  (Indiana),  the  Standard  Oil 
Co.  (Kentucky),  the  Standard  Oil  Co.  (New  Jersey),  the  Standard 
Oil  Co.  of  New  York  and  the  Union  Tank  Line  had  all  been  or- 
ganized by  the  Standard  Oil  trustees,  and  no  one  else  had  ever  held 
any  of  their  stock.  Their  capital  had  been  paid  for  with  the  com- 
mon moneys  of  the  holders  of  the  trust  certificates,  or  with  the 
properties  of  companies  whose  stocks  were  held  by  the  trustees  for 
their  account.  The  South  Penn  Oil  Co.,  the  Ohio  Oil  Co.  and  the 
Forest  Oil  Co.  were  producing  companies.  The  first  had  been 
originally  organized  by  the  Standard  Oil  trustees,  and  a  large  part 
of  the  properties  of  the  others  had  been  conveyed  to  them  by  com- 


The  Holding  Company  75 

panies  organized  by  the  Standard  Oil  trustees.  The  only  one  of 
the  twenty  companies  of  which  the  Standard  Oil  trustees  did  not 
own  the  entire  stock  was  the  Northwestern  Ohio  Natural  Gas  Co. 
(Def.  Exhibits  271  &  272,  vol.  19,  pp.  643-4).  Stocks  of  these 
twenty  companies  were  the  stocks  to  be  distributed  among  the 
holders  of  Standard  Oil  Trusts  certificates,  pursuant  to  the  reso- 
lution of  March,  1892. 

4.  The  Trustees  to  liquidate  the  Standard  Oil  Trust  named  in 
the  resolution  of  March,  1892,  notified  all  the  certificate  holders  of 
the  proposed  distribution  of  stocks  and  requested  them  to  submit 
their  trust  certificates  for  exchange  into  the  stock  of  the  twenty  com- 
panies. (J.  D.  Archbold,  vol.  17,  p.  3384.)  Several  of  the  larger 
holders  of  certificates  at  once  made  the  exchange,  receiving  shares 
and  fractional  shares  in  each  of  the  several  companies,  bearing 
in  each  case  the  same  proportion  to  the  amount  of  stocks  in  those 
companies  held  by  trustees  that  the  trust  certificates  previously 
held  by  them  had  borne  to  the  total  amount  of  the  trust  certificates 
outstanding.  The  smaller  certificate  holders  showed  great  reluc- 
tance about  making  the  exchange.     (J.  D.  Archbold,  vol.  17,  pp. 

3384-5).  •  • .- 

5.  The  unity  of  the  business  was  universally  recognized.  Stocks 
in  the  separate  companies  had  no  recognized  value,  and  were  not 
bought  or  sold  except  as  part  of  the  group  of  stocks  together  repre- 
senting an  interest  in  the  business  as  a  whole.  The  common  own- 
ership was  necessarily  recognized  in  the  conduct  of  the  business 
of  the  separate  companies  and  the  entire  business  carried  on  with 
a  view  to  the  interests  of  the  common  owners. 


.  .  .  The  same  people,  in  the  same  relations,  continued.  (J.  D. 
Rockefeller,  vol.  16,  p.  3190.).  .  .  . 

After  the  dissolution,  as  I  have  already  stated,  the  election  of 
the  different  companies  was  by  this  stock,  and  the  administration 
of  its  affairs,  its  particular  affairs,  and  the  matter  of  the  sale  of  its 
products  was  made  as  before,  I  suppose.  Of  course,  in  the  matter 
of  the  distribution  of  these  products  I  have  not  been  concerned 
or  interested  or  taken  any  part  for  long  years;  but  let  us  take,  for 
example,  the  Standard  Oil  Company  of  Ohio,  of  wThich  I  had  been 
the  President.  As  a  practical  question  what  would  be  done,  I 
suppose,  would  be  that  the  Standard  Oil  Company  of  Ohio  would 
supply  the  trade  which  it  could  supply  to  the  best  advantage  .  .  . 


76  Industrial  Combinations  and  Trusts 

and  it  would  be  just  the  thing  that  was  the  natural  thing  to  do  in 
that  regard.  These  properties  were  all  of  the  one  ownership.  ...  I 
mean  that  these  people  who  had  not  returned  their  certificates 
and  taken  their  interests  in  the  constituent  companies  yet  held 
the  original  trust  certificates,  and  that  was  their  evidence  of  their 
interest  in  the  business;  that  relation  was  not  changed.  (J.  D. 
Rockefeller,  vol.  16,  p.  3192)  I  suppose  that  as  a  matter  of  fact 
these  companies,  all  being  owned  by  the  same  people,  would  not  be 
managing  their  separate  businesses  except  in  the  way  that  would 
be  the  most  productive  for  all  the  separate  businesses.  (J.  D. 
Rockefeller,  vol.  16,  p.  3193)  .  .  .  The  control  of  those  different 
companies  in  each  case  was,  as  I  have  stated,  by  the  stock  hold- 
ings, and  those  companies  were  then,  as  now,  in  this  common 
ownership.  .  .  .  There  was  no  change  of  interest  of  the  parties 
concerned;  that  is,  every  man  had  just  the  precise  proportion  of  all 
this  business  that  he  had  had  before,  and  so  fast  as  these  trust 
certificates  were  cancelled,  then,  instead  of  having  one  certificate 
to  represent  that  precise  interest,  he  had  an  interest  in  each  one 
of  those  companies.    (J.  D.  Rockefeller,  vol.  16,  p.  3194). 


TENTH.  Upon  the  acquisition  of  the  stocks  of  all  the  com- 
panies by  the  Standard  Oil  Company  (New  Jersey)  each  share- 
holder in  the  twenty  companies  became  a  shareholder  in  the 
Standard  Oil  Co.  (New  Jersey)  in  the  same  proportion  in 
which  he  had  held  stock  in  each  of  the  twenty  Companies  or 
in  which  stock  therein  had  been  held  for  his  account  by  the 
Trustees. 

In  1899,  the  stock  of  the  Standard  Oil  Company  (New  Jersey) 
was  increased  from  $10,000,000,  divided  into  100,000  shares,  to 
$110,000,000,  divided  into  $100,000  shares  preferred  stock,  and 
1,000,000  shares  of  common  stock.  The  outstanding  stock  was 
to  be  treated  as  preferred  stock. 

On  June  19,  1899,  the  following  resolution  was  adopted  by  the 
Board  of  Directors  of  the  Standard  Oil  Co.  (New  Jersey).  (Pratt, 
vol.  1,  pp.  83-4): 

"The  president  or  one  of  the  vice-presidents  and  the  treasurer 
or  one  of  the  assistant  treasurers,  be  and  are  hereby  authorized 
to  issue  certificates  of  common  stock  of  this  company  and  deliver 
the  same,  in  purchase  of  the  stocks  of  the  following  companies, 


The  Holding  Company  77 

at  the  rate  of  one  share  of  common  stock  of  this  company  for  the 
following  fractional  shares,  to  wit: 

Anglo-American  Oil  Company,  Ltd.        -     -     -  26,000/972,500 

The  Atlantic  Refining  Company    -----  50,000/972,500 

The  Buckeye  Pipe  Line  Co. 200,000/972,500 

Eureka  Pipe  Line  Company      ----..  50,000/972,500 

Forest  Oil  Company  - -    -  55,000/972,500 

Indiana  Pipe  Line  Co.     --------  20,000/972,500 

National  Transit  Company       - 509,104/972,500 

New  York  Transit  Company    ------  50,000/972,500 

Northern  Pipe  Line  Company -  10,000/972,500 

The  Northwestern  Ohio  Nat.  Gas  Co.     -     -    -  32,785/972,500 

Ohio  Oil  Company      .-------_  80,000/972,500 

The  Solar  Refining  Co.    --------  5,000/972,500 

Southern  Pipe  Line  Co.   --------  50,000/972,500 

South  Penn  Oil  Co.     ---------  25,000/972,500 

Standard  Oil  Co.  of  Indiana      ------  10,000/972,500 

Standard  Oil  Co.  of  Kentucky       -----  10,000/972,500 

Standard  Oil  Co.  of  N.  J.  preferred  stock    -    -  100,000/972,500 

Standard  Oil  Co.  of  N.  Y.    -     -    -     -     -     -     -  70,000/972,500 

Standard  Oil  Co.  of  Ohio      -------  35,000/972,500 

Union  Tank  Line  Company      ------  35,000/972,500 

Common  stock  of  the  Standard  Oil  Company  (New  Jersey)  was 
issued  to  an  amount  exactly  equal  to  the  amount  of  trust  certificates 
outstanding  at  the  time  of  the  dissolution  of  the  Trust.1  The  actual 
exchanges  of  stock  are  set  out  in  detail  in  Defendants'  Exhibit 
388  (vol.  19,  p.  894).  Few  of  the  smaller  holders  of  trust  certificates 
exchanged  their  certificates  for  stock  in  the  twenty  companies.1  The 
total  number  of  stockholders  in  the  separate  companies  never  ex- 
ceeded one  hundred.  (Def.  Ex.  388,  vol.  19,  p.  894.)  In  June,  1899, 
there  were  still  outstanding  unexchanged  over  300,000  shares  of 
trust  certificates.     (Pet.  Ex.  250,  vol.  7,  pp.  427-429.) 

After  the  adoption  of  the  resolution  of  June  19,  1899,  a  method 
was  devised  to  enable  the  small  certificate  holders  to  obtain  the  benefit 
of  the  resolution  without  going  to  the  trouble  of  actually  themselves  ob- 
taining the  stocks  to  which  their  trust  certificates  entitled  them  and  which, 
under  the  terms  of  the  resolution,  they  had  to  have  in  order  to  obtain 
common  stock  of  the  Standard  Oil  Co.  (New  Jersey).1  This  method 
is  described  on  p.  3665,  vol.  17,  of  the  record. 
1  Italics  are  the  editor's. 


78  Industrial  Combinations  and  Trusts 

In  the  first  instance  shares  of  the  Standard  Oil  Co.  (New  Jersey) 
were  issued  to  both  Mr.  Rockefeller  and  Mr.  Flagler  and  the  shares 
owned  by  them  respectively  in  the  twenty  companies.  In  i8qq 
and  afterwards  various  holders  of  trust  certificates  in  relatively  small 
amounts,  to  avoid  the  inconvenience  to  them  of  converting  such  certif- 
icates into  shares  or  fractional  shares  of  the  twenty  companies  for  the 
purpose  of  transferring  such  shares  or  fractional  shares  to  the  Standard 
Oil  Co.  (New  Jersey)  transferred  their  trust  certificates  to  Mr.  Rocke- 
feller or  Mr.  Flagler,  and  received  from  them  shares  of  the  Standard  Oil 
Co.  (New  Jersey)  owned  by  Mr.  Rockefeller  or  by  Mr.  Flagler,  as  the 
case  might  be.1  Mr.  Rockefeller  and  Mr.  Flagler  later  converted 
the  certificates  so  transferred  by  them  into  the  shares  of  the  twenty 
companies,  and  then  transferred  those  shares  to  the  Standard 
Oil  Co.  (New  Jersey)  for  its  shares.  The  exchange  of  stocks  was 
substantially  completed  in  1900.  (Def.  Ex.  388,  vol.  19,  opp. 
p.  894.) 

Each  holder  of  stock  in  each  of  the  twenty  companies  received  the 
same  proportion  of  the  common  stock  of  the  Standard  Oil  Co.  (New 
Jersey)  that  he  had  theretofore  held  in  the  stock  of  each  of  the  twenty 
companies  distributed  by  the  Trustees. 

GROUP  3 

holding  company  laws 

Exhibit  i 

state  of  new  jersey  2 

And  be  it  enacted,  That  the  directors  of  any  company  incorporated 
under  this  act  may  purchase  mines,  manufactories  or  other  property 
necessary  for  their  business,  or  the  stock  of  any  company  or  com- 
panies owning,  mining,  manufacturing  or  producing  materials, 
or  other  property  necessary  for  their  business,  and  issue  stock  to 
the  amount  of  the  value  thereof  in  payment  therefor,  and  the  stock 
so  issued  shall  be  declared  and  be  taken  to  be  full-paid  stock  and 
not  liable  to  any  further  call,  neither  shall  the  holder  thereof  be 
liable  for  any  further  payments  under  any  of  the  provisions  of  this 
act;  ... 

1  Italics  are  the  editor's. 

3  Acts  of  the  113th  Legislature  of  the  State  of  New  Jersey,  1889.  Chap. 
CCLXV,  Sec.  4,  p.  414. 


The  Holding  Company  79 


Exhibit  2 
state  of  new  york  « 

Any  stock  corporation,  domestic  or  foreign,  now  existing  or 
hereafter  organized,  except  monied  corporations,  may  purchase, 
acquire,  hold  and  dispose  of  the  stocks,  bonds  and  other  evidences 
of  indebtedness  of  any  corporation,  domestic  or  foreign,  and  issue 
and  exchange  therefor  its  stock,  bonds  or  other  obligations  if  author- 
ized so  to  do  by  a  provision  in  the  certificate  of  incorporation  of 
such  stock  corporation,  or  in  any  certificate  amendatory  thereof 
or  supplementary  thereto,  filed  in  pursuance  of  law,  or  if  the  cor- 
poration whose  stock  is  so  purchased,  acquired,  held  or  disposed 
of,  is  engaged  in  a  business  similar  to  that  of  such  stock  corporation, 
or  engaged  in  the  manufacture,  use  or  sale  of  the  property,  or  in  the 
construction  or  operation  of  works  necessary  or  useful  in  the  busi- 
ness of  such  stock  corporation,  or  in  which  or  in  connection  with 
which  the  manufactured  articles,  product  or  property  of  such  stock 
corporation  are  or  may  be  used,  or  is  a  corporation  with  which  such 
stock  corporation  is  or  may  be  authorized  to  consolidate. 

Exhibit  3 
state  of  delaware  2 

Section  133.  Any  corporation  created  under  the  provisions  of 
this  act  may  purchase,  hold,  sell,  assign,  transfer,  mortgage, 
pledge  or  otherwise  dispose  of,  the  shares  of  the  capital  stock  of,  or 
any  bonds,  securities  or  evidence  of  indebtedness  created  by  any 
other  corporation  or  corporations  of  this  State  or  any  other  State, 
county,  nation  or  government,  and  while  owner  of  said  stock  may 
exercise  all  the  rights,  powers  and  privileges  of  ownership  including 
the  right  to  vote  thereon. 

Exhibit  4 

state  of  maine  3 

Section  14.  Any  corporation  organized  under  chapter  forty- 
eight  of  the  revised  statutes  may  purchase,  hold,  sell,  assign, 

1  Laws  of  New  York,  1892,  Chap.  688,  Art.  Ill,  Sec.  40,  p.  1834. 

2  Laws  of  the  State  of  Delaware,  1899,  Chap.  273,  Sec.  133,  pp.  500-501. 
'  Laws  of  the  State  of  Maine,  1901,  Chap.  229,  Sec.  14,  p.  243. 


80  Industrial  Combinations  and  Trusts 

transfer,  mortgage,  pledge  or  otherwise  dispose  of  the  shares  of 
the  capital  stock  of,  or  any  bonds,  securities  or  evidences  of  in- 
debtedness created  by  any  other  corporation  or  corporations  of 
this  or  any  other  state,  territory  or  country,  and  while  owner  of 
such  stock  may  exercise  all  the  rights,  powers  and  privileges  of 
ownership,  including  the  right  to  vote  thereon. 


CHAPTER  VI 
FORMATION  OF  THE    UNITED    STATES    STEEL    CORPORATION 

NOTE 

It  was  only  after  careful  consideration  that  the  editor  decided 
to  incorporate  in  this  volume  anything  in  regard  to  the  formation 
of  the  United  States  Steel  Corporation.  His  hesitancy  was  due  to 
the  fact  that  the  organization  of  this  concern  has  been  repeatedly 
written  up:  by  Bridge  in  his  "Inside  History,"  by  Meade  in  his 
"Trust  Finance,"  by  Berglund  in  his  "United  States  Steel  Cor- 
poration," and  last,  but  not  least,  by  the  Commissioner  of  Cor- 
porations in  his  recent  report.  The  circumstances  lying  back,  of  the 
formation  of  this  gigantic  corporation  are  therefore  well  known. 
Two  considerations  finally  led  to  the  insertion  of  an  account  of 
the  organization  of  the  combination.  The  first  was  the  de- 
sire for  completeness;  the  second,  the  fact  that  a  careful  perusal 
of  the  somewhat  conflicting  testimony  before  the  Stanley  Com- 
mittee appeared  to  afford  a  more  interesting  story  of  the  consolida- 
tion than  has  as  yet  appeared,  more  especially  as  it  was  from  the 
lips  of  those  who  were  most  prominent  in  the  matter. — Ed. 

Exhibit  i 
testimony  of  john  w.  gates  1 

The  Chairman.  The  United  States  Steel  Corporation  was 
formed  about  iqoi,  was  it  not? 

Mr.  Gates.  1901;  yes,  sir.  It  started  in  1900  and  finished  in 
1901. 

The  Chairman.  At  that  time  was  there  any  danger  of  a  second 
demoralization  in  prices  on  account  of  the  attitude  of  Mr.  Carnegie 
toward  the  rest  of  these  concerns?  I  believe  up  to  that  time  a  great 
many  of  them  had  been  getting  certain  products  from  him,  and 
manufacturing  certain  products  themselves.  In  other  words,  along 
in  1898  or  1899  the  Federal  Steel  Co.  had  its  orbit  or  its  scope  of 
activities  pretty  well  defined,  did  it  not,  and  the  other  companies 

1  Hearings  before  the  Committee  on  Investigation  of  the  United  States  Steel 
Corporation,  62nd  Cong.,  2nd  Sess.,  1911-1912,  pp.  30-32,  40  and  44. 


82  Industrial  Combinations  and  Trusts 

in  the  same  way?  Each  had  its  own  sphere  of  operations?  They 
did  not  impinge  one  upon  the  other  to  any  great  extent? 

Mr.  Gates.  Well,  I  would  have  to  explain  by  making  a  state- 
ment. Mr.  Morgan,  along  about  1899  or  1900,  organized  the  Na- 
tional Tube  Co.  by  the  acquisition  of  the  stock  of  the  National 
Tube  Co.,  just  out  of  Pittsburg,  and  the  Riverside  Steel  Co.,  near 
Wheeling,  and  two  or  three  more  tube  concerns,  and  they  were 
making  a  good  deal  of  money  in  the  manufacture  of  tubes.  Mr. 
Carnegie  took  it  into  his  head  that  he  would  build  a  railroad  from 
Lake  Erie  points — from  some  point  on  Lake  Erie  to  his  various 
works  around  Pittsburg — and  that  he  would  also  build  a  tube 
works;  and  he  proposed  to  build  this  tube  works,  if  my  memory 
serves  me  aright,  at  Ashtabula,  Ohio,  where  a  great  deal  of  the  ore 
is  unloaded.  Mr.  Hill  and  Mr.  Morgan  had  dined  together — James 
J.  Hill — and  Mr.  Morgan  had  expressed  to  Mr.  Hill  the  fear  that 
if  Carnegie  went  into  the  building  of  railroads  he  would  demoralize 
the  entire  railroad  situation  as  he  had  demoralized  the  steel  situ- 
ation, and  that  if  he  built  a  tube  works  at  Ashtabula  it  would  result 
in  a  demoralization  of  the  prices  of  tubes.  Mr.  Morgan  had  just 
put  the  National  Tube  Co.  together.  After  considerable  talk 
between  Mr.  Hill  and  Mr.  Morgan,  Mr.  Hill  suggested  to  Mr. 
Morgan  that  he  talk  to  me.  Mr.  Morgan  said  that  we  were  not 
very  friendly,  and  he  asked  Mr.  Hill  to  come  over  to  see  me  and  see 
if  I  would  meet  him  and  talk  about  the  situation,  which  I  agreed 
to  do.  I  had  a  talk  with  Morgan,  and  he  asked  me  how  I  would 
suggest  we  could  stop  Carnegie  from  building  this  railroad  and 
building  this  tube  works;  and  I  told  him  in  my  opinion  there  was 
only  one  man  to  talk  to  that  had  any  influence  with  Mr.  Carnegie, 
and  that  was  Charley  Schwab.  He  wanted  to  call  in  Frick.  I 
said,  "If  you  do,  you  will  never  make  a  trade  with  Mr.  Carnegie." 
Well,  he  said,  "Will  you  get  Schwab  on  for  a  conference?"  I  said  I 
would.  I  asked  him  where  he  wanted  the  conference,  and  he  said 
he  would  prefer  to  have  it  at  Philadelphia  at  the  Bellevue- 
Stratford  Hotel — no,  the  Bellevue  Hotel.  The  Stratford  was  not 
built.  I  called  Charley  up  on  the  telephone  from  New  York  and 
asked  him  if  he  would  come  over  to  Philadelphia,  and  intimated  to 
him  it  was  something  pretty  important.  He  said  he  would  come 
over  that  night. 

Next  morning  was  very  stormy.  It  snowed  and  blew  and  was 
very  cold,  and  Mr.  Morgan  called  my  son  up  and  asked  him  to 
come  over. 


Formation  of  United  States  Steel  Corporation    83 

He  went  over,  and  Mr.  Morgan  explained  to  him  that  he  had  got 
a  severe  cold  and  his  doctor  would  not  let  him  go  out;  that  he  was 
afraid  he  would  catch  more  cold;  and  would  he  go  back  and  get  me 
to  arrange  to  have  Schwab  come  on  to  New  York.  My  son  came 
back  and  reported  to  me,  and  I  called  Mr.  Schwab  up — he  was  at 
the  Bellevue  Hotel  at  Philadelphia — and  asked  him  to  come  over. 
He  came  over  and  dined  with  me  at  the  Manhattan  Club,  and 
we  went  up  to  Mr.  Morgan's  house  about  9  o'clock  in  the  evening. 
We  discussed  the  possibility  of  pouring  oil  on  the  troubled  waters 
and  saving  the  situation.  I  think  Mr.  Schwab  and  I  stayed  there 
until  about  6  o'clock  the  next  morning.  When  we  left  a  tentative 
plan  had  been  drawn  up  for  the  purpose  of  getting  the  various 
corporations  into  one  concern.  Judge  Moore,  who  was  in  the 
National  Steel  Co. 

The  Chairman.  I  do  not  want  to  interrupt  you,  but  the  one 
concern  to  which  you  referred  was  the  embryonic  United  States 
Steel  Corporation? 

Mr.  Gates.  The  United  States  Steel  Co.  Judge  Moore  and  Mr. 
Frick  felt  very  sore  over  the  $1,000,000  that  they  had  paid  to 
Carnegie,  for  which  they  got  nothing.  Schwab  stated  that  Mr.  Car- 
negie would  agree  to  anything  he  would  suggest.  He  pulled  a  letter 
out  of  his  pocket  and  showed  it  to  Morgan  and  me,  showing  that  he 
had  a  contract  with  Carnegie  to  pay  him  $1,000,000  a  year  for  five 
years.  We  went  on  and  laid  out  the  plan  of  the  United  States  Steel 
Corporation  without  consultation  with  Frick,  who  was  a  large  owner. 
Then,  as  I  understood  it — but  this  only  hearsay  evidence 

The  Chairman.     Explain  that  plan  as  you  go  along. 

Mr.  Gates.     It  was  the  plan  that  was  adopted. 

The  Chairman.     That  is,  for  a  holding  company? 

Mr.  Gates.  For  a  holding  company.  Judge  Moore  got  hold  of 
Carnegie,  I  was  told,  and  said  to  Carnegie:  "If  you  are  going  to 
take  bonds  in  payment  of  your  property,  make  those  bonds  cover 
the  National  Steel  Co.  as  well  as  your  own."  Now,  Mr.  Carnegie 
demanded  that  of  Morgan,  and  it  enabled  the  National  Steel  Co., 
in  my  opinion,  to  get  $50,000,000  more  for  their  property  than  it  was 
worth,  because  Carnegie  would  not  turn  his  over  unless  they  had  a 
mortgage  on  the  National,  and  the  rest  of  us  had  to  suffer.  That 
is  about  the  history  of  the  United  Steel. 

The  Chairman.  You  spoke  about  pouring  oil  on  the  troubled 
waters  and  relieving  the  situation.  What  was  the  trouble  with  the 
situation? 


84  Industrial  Combinations  and  Trusts 

Mr.  Gates.  The  trouble  was  that  Carnegie  had  threatened  to 
build  the  tube  mill  at  Ashtabula  and  a  railroad  to  haul  his  own  ore 
down. 

The  Chairman.  He  was  going  to  build  a  railroad  to  come  into 
competition  with  the  existing  railroads? 

Mr.  Gates.  Yes;  and  a  tube  plant  to  tear  the  National  Tube, 
that  Morgan  had  just  put  together,  all  to  pieces. 

The  Chairman.  He  was  going  to  give  Morgan  trouble,  both  in 
his  manufacturing  industry  and  with  his  common  carrier? 

Mr.  Gates.    It  looked  that  way. 

The  Chairman.  And  it  was  to  obviate  this  anticipated  com- 
petition that  this  tentative  plan  was  drawn  up  that  afterwards  be- 
came the  United  States  Steel  Corporation? 

Mr.  Gates.    Yes,  sir. 

The  Chairman.  How  long  was  it  from  the  time  you  got  started 
until  this  industrial  accouchement  actually  occurred? 

Mr.  Gates.  It  was  60  days,  I  should  say,  or  less — maybe  40 
days.    We  worked  pretty  fast. 

The  Chairman.  There  was  a  thorough  understanding,  except 
as  to  details,  as  to  the  method  of  operation  and  what  each  man  was 
to  get,  and  what  his  relations  were  to  be  to  his  fellows,  before  the 
articles  of  incorporation  were  ever  drawn  up,  was  there  not? 

Mr.  Gates.  I  think  they  drew  up  the  articles  of  incorporation 
for  the  United  States  Steel  Corporation  originally  for  $10,000,  and 
then  they  gradually  extended  it  as  necessity  arose.  As  each  con- 
cern came  in  they  would  increase  a  few  million  or  hundred  million. 

The  Chairman.  Mr.  Carnegie,  I  believe,  got  $320,000,000  in 
bonds,  did  he  not,  for  his  property — for  the  Carnegie  Co.? 

Mr.  Gates.  He  got  $320,000,000  for  what  he  had  offered  at 
$100,000,000  or  $160,000,000  the  year  before,  and  got  $1,000,000 
forfeit. 


The  Chairman.  I  am  now  trying  to  get  at  what  was  the  trouble. 
Was  it  not  competition  and  threatened  competition  between  these 
companies? 

Mr.  Gates.  It  was  the  threat  of  Carnegie  to  build  a  railroad  from 
Ashtabula  to  his  works  at  Pittsburg  and  to  build  a  tube  plant  in 
competition  with  the  National  Tube  Works,  which  Morgan  had  just 
finished. 


Formation  of  United  States  Steel  Corporation    85 

The  Chairman.  Was  not  he  also  threatening  to  go  into  the  entire 
iron  and  steel  business — that  is,  to  compete  with  the  Bridge  Co.  and 
with  the  Steel  Hoop  Co.  and  the  Sheet  &  Plate  Co.?  Was  he  not 
threatening  to  do  all  those  things? 

Mr.  Gates.  Mr.  Carnegie  had  been  in  the  wire  business  and  we 
bought  him  out.  He  put  in  $1,000,000  and  we  bought  him  out  for 
half  a  million.     [Laughter.] 

The  Chairman.  Was  he  not  threatening  to  go  back  into  that 
business? 

Mr.  Gates.  We  never  had  any  fear  of  Carnegie. 

The  Chairman.  Mr.  Carnegie  was  also  threatening  to  go  into  the 
tin-plate  business,  was  he  not,  at  that  time? 

Mr.  Gates.  I  guess  he  was  threatening  the  whole  line. 

The  Chairman.  He  was  threatening  the  whole  line? 

Mr.  Gates.  He  was  trying  to  sell  out,  and  he  bought,  you  see,  at  a 
good  price.     [Laughter.] 

The  Chairman.  And  the  result  of  this  threat  along  the  whole  line 
enabled  him  to  sell  this  property  that  he  had  given  an  option  on  at 
$150,000,000  for  about  $500,000,000? 

Mr.  Gates.  That  is  inference  on  your  part.  The  facts  are  that 
he  gave  an  option  for  $100,000,000  or  $160,000,000  and  got 
$320,000,000  a  little  later. 


Mr.  Beall.  The  real  cause  of  complaint  against  Mr.  Carnegie  was 
that  he  would  not  abide  by  the  agreement,  but  would  insist  on  cut- 
ting the  price? 

Mr.  Gates.  He  was  like  a  bull  in  a  china  shop.  He  would  get  a 
thing  into  his  head  once  in  a  while  and  go  and  do  absurd  things, 
that  I  really  think  he  did  not  think  much  about. 

Mr.  Beall.  Would  those  absurd  things  usually  result  in  reducing 
the  price  of  steel  products? 

Mr.  Gates.  It  might,  or  it  might  advance  them.  You  could  not 
tell  what  he  would  do. 

Mr.  Beall.  The  fear  was  that  if  he  carried  out  his  plan  there 
would  be  a  competing  line  of  railroad,  as  well  as 

Mr.  Gates.  I  can  not  state  it  any  plainer  than  Mr.  Morgan  stated 
it  to  Mr.  Schwab  and  me — that  if  Mr.  Carnegie  should  build  this 
tube  works  at  Ashtabula  and  a  railroad  from  Ashtabula  to  his  works 
in  the  Pittsburg  district  it  would  demoralize  the  whole  situation. 
That  was  Mr.  Morgan's  statement  and  not  mine. 


86  Industrial  Combinations  and  Trusts 


Exhibit  2 

testimony  of  elbert  h.  gary1 

Mr.  Littleton.  J.  Edward  Simmons? 

Mr.  Gary.  Yes;  J.  Edward  Simmons.  Mr.  Simmons,  I  think,  at 
the  request  of  Mr.  Erick,  gave  a  dinner  in  New  York,  and  invited 
Mr.  Schwab,  Mr.  Morgan,  and  various  other  people  to  the  dinner. 
Mr.  Schwab  made  a  little  statement  at  that  dinner  concerning  the 
steel  business  that  made  quite  an  impression  on  Mr.  Morgan. 

Mr.  Young.  Do  you  remember  what  the  nature  of  that  statement 
was — what  it  related  to? 

Mr.  Gary.  It  was  concerning  the  great  ability  of  the  Carnegie  Co. 
and  concerning  its  cost  of  production,  concerning  its  export  busi- 
ness, which  at  that  time,  though  small  from  the  present  standpoint, 
was  considerable;  and  of  course  I  have  no  doubt  what  Mr.  Schwab 
had  in  mind  was  the  idea  of  showing  that  it  would  be  a  great  thing 
in  2  the  Federal  Steel  should  see  its  way  clear  to  acquiring  the 
Carnegie  Steel  Co. 

Mr.  Young.  Did  he  say  anything  about  the  conditions  of  com- 
petition in  the  steel  business  at  that  time? 

Mr.  Gary.  I  was  not  there,  and  I  do  not  know  that  he  did.  I  am 
not  sure  about  that.  I  doubt  it.  But  the  next  thing  I  heard  about 
it,  one  Sunday  morning  early,  Mr.  Robert  Bacon  came  to  my  home. 

Mr.  Young.  Who  was  that? 

Mr.  Gary.  Mr.  Robert  Bacon,  who  was  then  a  partner  in  the  firm 
of  J.  P.  Morgan  &  Co. — then  a  member  of  the  firm — came  to  my 
home  early  Sunday  morning,  and  said  that  the  night  before 
Mr  Schwab  had  surprised  Mr.  Morgan  by  bringing  him  a  letter  from 
Mr.  Carnegie  stating  that  he,  Mr.  Carnegie,  would  sell  his  proper- 
ties and  take  his  pay  in  bonds  secured  on  the  properties,  as  I  remem- 
ber. He  did  not  say  anything  to  me  about  Mr.  Gates  having  been 
there  with  Mr.  Schwab.  I  can  not  deny  that;  I  have  no  knowledge 
on  the  subject,  but  I  am  very  sure  that  Mr.  Schwab  is  mistaken  in 
his  statement. 

Mr.  Young.  You  mean  Mr.  Gates  is  mistaken  in  his  statement? 

Mr.  Gary.  I  mean  Mr.  Gates  is  mistaken  in  his  statement  that 
during  that  night  a  plan  was  formulated  for  the  organization  of  the 

1  Hearings  before  the  Committee  on  Investigation  of  United  States  Steel 
Corporation,  62nd  Cong.,  2nd  Sess.  1911-1912,  pp.  205-211,  219-221. 

2  Thus  in  original. — Ed. 


Formation  of  United  States  Steel  Corporation    87 

United  States  Steel  Corporation.  I  know  that  could  not  be  true, 
from  what  followed.  That  is,  he  is  mistaken  in  supposing  that  that 
is  true;  that  is  what  I  mean.  I  do  not  know;  I  have  no  knowledge  of 
his  being  there.  I  never  heard  of  it  until  I  read  it  in  his  testimony. 
It  is  not,  to  my  mind,  important  whether  he  was  there  or  not,  but 
I  think  it  is  of  some  importance  to  consider  whether  they  formu- 
lated, that  night,  a  plan  for  the  organization  of  the  United  States 
Steel  Corporation.  Anyhow,  Mr.  Bacon  did  not  say  anything  to  me 
about  Mr.  Gates  or  anybody  else.  He  simply  had  that  letter  in 
which  Mr.  Carnegie  offered  to  sell  his  properties  and  take  his  pay 
in  bonds. 

Mr.  Young.  Did  he  fix  any  price  on  them? 

Mr.  Gary.  Yes;  the  price  was  fixed;  the  price  afterwards  paid  in 
bonds.  Mr.  Bacon  said  Mr.  Morgan  requested  him  to  come  and 
see  me  early  in  the  morning  and  present  the  whole  question  to  me 
and  get  my  opinion  as  to  whether  or  not  it  was  a  practical  business 
proposition  or  not.  Mr.  Bacon  and  I  went  over  the  matter  thor- 
oughly, it  seems  to  me,  until  lunch  time.  I  think  Mr.  Bacon  then 
went  back  to  Mr.  Morgan  and  came  again  in  the  afternoon  and 
stayed  with  me  until  very  late  that  evening,  going  over  the  matter. 

At  that  time,  from  the  standpoint  of  the  Federal  Steel  Co.,  the 
great  necessity  was  for  having  additional  finishing  mills,  and  having 
a  corporation  of  sufficient  capital  and  strength  to  be  able  to  in- 
crease very  materially  its  lines  of  business,  particularly  its  export 
business,  which  at  that  time  was  comparatively  small.  As  indicated 
in  what  I  have  referred  to  as  a  little  article  I  wrote  for  the  World  in 
1  goo,  I  had  referred  to  this  subject  matter  of  export  business  being 
necessary,  and  of  the  ability  of  a  large  and  rich  corporation  to  in- 
crease that  export  business,  that  being  one  of  the  objects  of  a  large 
combination  of  capital.  Germany,  for  instance,  at  the  present 
time  with  a  capacity  of  something  like  9,000,000  tons  a  year — not 
to  attempt  to  speak  with  strict  accuracy — exports  about  50  per 
cent  of  it  to  foreign  countries,  to  neutral  ports  all  over  the  world, 
and  other  foreign  manufacturers  have  a  large  and  increasing  export 
business.  We  had  a  very  small  export  business  in  this  country  of 
steel  products,  and  it  was  necessary  to  do  something  to  increase 
that,  to  secure  and  maintain  a  position  in  the  trade,  in  our  contest 
for  a  fair  share  of  foreign  business,  that  is  the  business  that  came 
from  neutral  ports  all  over  the  world;  and  I  went  into  that  subject 
very  carefully  with  Mr.  Bacon  on  that  day,  and  there  was  a  good 
deal  of  discussion  between  him  and  me  in  regard  to  the  price  which 


88  Industrial  Combinations  and  Trusts 

Mr.  Carnegie  asked  for  his  properties.  I  knew  Mr.  Carnegie  had 
given  an  option  on  his  interest  in  these  properties  at  a  much  less 
sum,  within  two  years.  I  have  forgotten  the  exact  date.  But  in 
the  meantime  the  values  of  properties  had  very  materially  in- 
creased, particularly  as  to  ore  and  coal  properties,  and  the  Carnegie 
Co.  had  shown  by  the  results  of  its  business  that  its  earning  capacity 
was  increasing  very  rapidly,  and  that  therefore  its  properties  were 
much  more  valuable  than  they  were  at  the  time  that  that  option 
was  given. 

Mr.  Bartlett.  Was  the  Carnegie  Co.  a  corporation  or  a  partner- 
ship? 

Mr.  Gary.  It  was  a  corporation  at  that  time.  Without  being  cer- 
tain about  the  names,  I  think  the  Carnegie  Co. 

The  Chairman.  "Limited,"  it  was  called? 

Mr.  Gary.  No,  sir;  the  Carnegie  Co.,  the  corporation,  took  over 
the  Carnegie  Steel  Co.  (Ltd.),  a  partnership,  under  the  laws  of  Penn- 
sylvania, and  that  was  the  owner  of  various  subsidiary  companies. 

I  said  to  Mr.  Bacon,  "There  are  a  good  many  things  to  consider 
about  this.  If  we  can  complete  a  corporation  that  is  large  enough 
and  rich  enough,  wit1  sufficient  financial  resources,  to  furnish  us 
adequate  finishing  mills  and  enable  us  to  increase  our  export  busi- 
ness as  it  ought  to  be  increased,  I  believe  that  this  proposition  is  at 
least  worth  considering."  And  it  was  then  agreed  between  us  that 
I  should  meet  Mr.  Morgan  at  his  bank  at  n  o'clock  on  Monday. 
I  did  meet  him  there,  and  he  and  I  spent  some  time  going  over  this 
matter,  and  I  explained  to  him  in  detail  the  business  reasons  for 
entertaining  this  proposition,  at  least,  and  finally  said  to  him,  "It 
seems  to  me,  if  you  think  of  this  being  practicable,  we  should  start 
from  the  Federal  Steel  Co.,  and  therefore  the  first  thing  to  do  is  to 
call  in  the  Federal  Steel  people  who  are  in  the  management — prac- 
tically in  control — of  this  corporation." 

Thereupon  we  telephoned  for  Mr.  Norman  B.  Ream,  who  has 
been  here,  and  wTho  was  one  of  the  directors  of  the  Federal  Steel 
Co.,  who  lived  in  Chicago  but  who  happened  to  be  in  New  York 
that  morning,  as  I  knew,  because  I  had  a  letter  from  him  that  morn- 
ing from  Chicago,  and  Mr.  H.  H.  Rogers,  another  director  of  the 
Federal  Steel  Co.,  Mr.  D.  O.  Mills,  another  director,  Mr.  H.  H. 
Porter,  another  director,  and  we  got  into  telephonic  communica- 
tion, through  Mr.  Ream  or  otherwise,  with  Mr.  Marshall  Field, 
of  Chicago,  another  director;  and  when  these  gentlemen  came  to- 
1  Thus  in  original. — Ed. 


Formation  of  United  States  Steel  Corporation    89 

gether,  in  my  way  I  attempted  to  present  to  them  the  possibilities 
of  an  organization  that  would  seem  to  me  to  be  desirable  and  suc- 
cessful, and  that  would  be  a  good,  fair,  business  proposition,  and 
that  would  meet  what  seemed  to  me  to  be  the  necessities,  from 
the  standpoint  of  the  business  of  manufacturing  and  selling  iron 
and  steel  in  this  country  in  competition  with  the  other  countries 
of  the  world,  and  Mr.  Morgan  said  that  so  far  as  he  was  concerned 
he  knew  this  would  involve  financial  operations  that  were  very 
important  and  very  responsible,  and  anyone  might  hesitate  in 
regard  to  it,  and  yet  if  we  gentlemen  reached  the  conclusion  that 
it  was  a  good  business  proposition  and  perfectly  proper  and  safe 
and  reliable  from  a  business  standpoint  and  every  other  way,  he 
would  consider  acting  as  the  financial  sponsor  or  manager  of  a 
syndicate.  After  a  good  deal  of  discussion  and  consideration, 
while  there  was  some  opposition — a  considerable  opposition  in  the 
first  place,  particularly  on  the  part  of  Mr.  Porter — these  gentlemen 
assented;  and  that  is  where  we  started. 

Mr.  Young.  At  that  time  was  anything  contemplated  except  the 
joinder  of  the  Federal  Steel  Co.  and  the  Carnegie  Co.?  Had  it 
grown  any  larger? 

Mr.  Gary.  It  had  grown  in  the  conversation,  yes;  no  doubt  about 
it.  Various  other  companies  were  mentioned,  particularly  the  Wire 
Co.,  the  Tube  Co.,  and  the  Bridge  Co.,  and  later  the  National 
Steel  Co.,  because  I  believe  it  is  true  that  Mr.  Carnegie  insisted 
that  the  National  Steel  should  be  acquired.  I  never  knew  until  I 
read  Mr.  Gates's  testimony  that  that  was  the  result  of  Mr.  Moore 
going  to  Mr.  Carnegie  and  suggesting  that.  That  may  be  true. 
I  have  no  knowledge  on  the  subject,  but  I  do  remember,  during 
the  negotiations,  during  the  conversations,  that  the  National  Steel 
was  spoken  of. 

Mr.  Young.  Was  Mr.  Moore  largely  interested  in  the  National 
Steel  at  that  time? 

Mr.  Gary.  Yes;  he  was  the  dominant  factor  there.  There  was  a 
group  of  men  consisting  of  Mr.  Moore,  Mr.  Reid,  and  Mr.  Leeds, 
who  were  dominant  in  that  company,  and  three  other  companies, 
the  Tin  Plate  Co.,  the  American  Sheet  Steel  Co.,  and  the  American 
Hoop  Co.,  whatever  its  technical  name  may  have  been;  and,  since 
you  have  asked  that  question,  later  came  the  consideration  of  the 
Rockefeller  ores,  with  what  was  attached.  The  first  proposition 
was  as  to  whether  or  not  we  could  organize  a  complete  corporation 
which  should  be  self-contained,  which  should  be  in  a  position  to 


90  Industrial  Combinations  and  Trusts 

operate  at  the  lowest  cost  of  production,  and  which  would  have 
sufficient  finishing  mills  and  sufficient  capital  to  be  able  to  compete 
with  other  manufacturers  throughout  the  world. 

It  was  on  that  basis  we  started  this  organization;  it  was  on  that 
basis  we  completed  it. 


It  has  been  suggested  here,  and  with  reason,  based  on  facts,  that 
there  was  some  competition  between  some  of  the  companies  which 
were  taken  into  the  United  States  Steel  Corporation.  There  is  no 
effort  whatever  to  get  away  from  the  exact  facts  in  regard  to  that, 
and  I  will  be  glad  to  give  you — I  think  I  can  give  you  pretty  accu- 
rately— just  what  that  competition  was;  but,  compared  with  the 
whole  proposition  taken  up  at  that  time,  there  was  comparatively 
little  competition  between  the  different  companies  that  went  into 
the  United  States  Steel  Corporation,  as  I  understand  it,  and  in  my 
opinion,  from  my  viewpoint. 

The  Carnegie  Steel  Co.  and  the  Illinois  Steel  Co.  were  in  compe- 
tition in  the  manufacture  of  rails,  one  located  at  Pittsburg  and  the 
other  at  Chicago,  the  territories  being  quite  remotely  situated. 
The  Carnegie  mills  largely  supplied  a  territory  which  was  not  sup- 
plied by  the  Illinois  Steel  Co.,  and  the  Illinois  Steel  Co.  a  territory 
which  was  not  supplied  to  any  extent — to  any  large  extent — by  the 
Carnegie  Co. 

Then  in  plate  to  some  extent  the  same  applies  between  the 
Carnegie  Co.  and  the  Federal  Steel  Co.,  that  is,  through  subsidiary 
companies  of  the  Federal  Steel  Co.  I  will  give  you  that  a  little 
more  completely  later,  if  you  will  allow  me,  because  I  do  not  want 
to  disguise  or  minimize  what  that  competition  was;  but  in  my  opin- 
ion the  competitive  feature  applicable  to  these  different  companies 
was  incidental.  It  was  not  the  principal  factor,  not  the  important 
factor;  certainly  it  was  not  so  considered  by  me,  not  so  stated,  and 
not  in  our  minds  at  that  time;  and  in  saying  that  I  do  not  want  to 
minimize  the  fact  that  there  was  competition,  and  I  would  be  glad 
to  give  that  to  you  exactly  as  it  existed. 

Mr.  Young.  We  would  be  very  glad  to  have  it. 

Mr.  Gary.  I  have  not  undertaken  to  say  anything  about  the  pre- 
vious organizations  of  these  subsidiary  companies,  and  I  am  not 
trying  to  conceal  that,  at  all.  I  have  little  knowledge  in  regard  to 
them,  except  as  to  the  Federal  Steel.  I  did  know,  however,  because 
I  had  been  somewhat  connected  with  it  at  an  earlier  day,  that  the 


Formation  of  United  States  Steel  Corporation    91 

Wire  Co.  had  put  together  some  wire  companies  which  were  in  com- 
petition. That  we  had  nothing  to  do  with.  We  took  the  Wire  Co. 
and  all  these  other  companies  as  we  found  them  at  the  time.  I  did 
not  know  anything  about  the  Tube  Co.  and  I  did  not  know  any- 
thing about  the  Bridge  Co.  Mr.  Roberts  is  here,  and  he  can  tell  you 
all  about  the  Bridge  Co.,  and  others  can  tell  you  all  about  the  other 
companies.  I  knew  little  about  them,  and  I  doubt  whether  Mr. 
Morgan  knew  much  about  them.  He  had,  though,  in  the  way  of 
financing  or  representing  syndicates,  I  believe,  some  relation  with 
the  Tube  Co.  and  with  the  Bridge  Co. 

It  has  been  stated  during  tins  investigation,  I  think,  that  there 
were  threats  on  the  part  of  Mr.  Carnegie  to  build  a  tube  mill,  and 
that  was  an  important  factor.  If  that  is  so,  I  did  not  know  of  that, 
I  did  not  hear  of  that,  and  I  have  no  comments  to  make  about  it. 
It  certainly  was  not  spoken  of  in  our  deliberations.  I  had  heard 
that  Air.  Carnegie  was  considering — had  said  something  about — 
building  a  railroad  from  Pittsburg  to  New  York,  and  that  had  dis- 
turbed the  Pennsylvania  Railroad  people.  I  had  no  knowledge  on 
that  subject.  I  do  not  remember  to  have  heard  it  referred  to  at 
that  time. 

Mr.  Young.  You  are  sure  you  heard  no  conversation  by 
Mr.  Morgan  in  regard  to  that  railroad  proposition? 

Mr.  Gary.  I  do  not  remember  to  have  heard  anything  about  it, 
but  I  do  not  say  that  he  did  not  speak  about  it.  Of  course  others 
might  correct  me.  I  had  heard,  I  know,  that  Mr.  Carnegie  talked 
of  building  a  railroad  from  Pittsburg  to  New  York  because  he  got 
into  some  altercation  with  the  Pennsylvania  Railroad  Co.  in  regard 
to  freights  from  Pittsburg  to  New  York.  But  I  have  heard  a  great 
deal — I  have  seen  more  or  less  in  the  newspapers — about  a  desire, 
a  disposition,  to  eliminate  Mr.  Carnegie,  and  all  that.  I  do  not 
know.  Mr.  Carnegie  was  no  doubt  anxious  to  sell  hfe  properties 
at  what  he  then  considered  was  a  good  price  and  what  he  now  con- 
siders was  a  very  small  price,  as  he  has  stated  repeatedly  and  with 
emphasis,  and  we  were  desirous  of  securing  the  Carnegie  properties 
and  the  other  properties  for  the  reasons  I  have  given,  and  we  se- 
cured them  at  the  best  prices  obtainable,  every  one  of  them.  If  we 
paid  too  much,  it  was  because  we  could  not  help  ourselves;  we  could 
not  get  them  without.  I  was  in  very  close  connection  with  this 
proposition  from  the  beginning,  as  I  have  stated,  until  the  corpora- 
tion was  organized,  being  at  Morgan's  every  day  a  part  of  the  day 
and  with  the  counsel  in  the  case  another  part  of  most  of  the  days. 


92  Industrial  Combinations  and  Trusts 

When  it  came  to  deciding  upon  the  form  of  organization,  the  charter, 
and  by-laws,  and  all  that  sort  of  thing,  I  was  present  and  partici- 
pated in  it.  Nothing  was  said  about  the  form  of  the  corporation 
until  some  time  after  the  first  meeting.  I  am  very  sure  that  up  to 
that  time  Mr.  Morgan  had  never  given  any  thought  to  it,  and  cer- 
tainly from  that  time  Mr.  Gates  never  had  anything  whatever  to  do 
with  it  except  in  representing,  with  others,  the  Wire  Co.,  in  trying 
to  get  all  he  possibly  could  for  himself  and  other  stockholders. 

Mr.  Bartlett.  May  I  ask  you  a  question  there?  This  was  in 
iqoi,  was  it? 

Mr.  Gary.  In  iqoi. 

Mr.  Bartlett.  At  the  time  of  the  formation  of  the  Federal  Steel 
Co.? 

Mr.  Gary.  No,  no;  the  United  States  Steel.  The  Federal  Steel 
was  organized  in  the  summer  of  1908.  I  think  it  required  two  or 
three  months'  work — about  three  months'  work — before  we  com- 
menced operations;  or,  at  least,  the  company  was  embarked  about 
the  1st  of  November,  1908.1 

Mr.  Bartlett.  Was  it  in  1905  2  that  the  threat  was  abroad,  or  sug- 
gested, or  afloat,  that  Mr.  Carnegie  was  to  build  this  tube  works  and 
the  railroad? 

Mr.  Gary.  Judge  Bartlett,  I  never  heard  anything  about  the  tube 
works,  and  I  do  not  know  anything  about  that. 

Mr.  Bartlett.  I  find  in  Mr.  Schwab's  testimony  before  the  Ways 
and  Means  Committee  in  1908,  the  following  on  that  subject: 

Mr.  Cockran.  And  in  1901,  when  there  was  an  announcement  or  threat  that 
there  would  be  some  competition  through  Mr.  Carnegie's  going  into  the  tubing 
business,  the  Carnegie  Co.  going  into  it,  there  was  another  consolidation  in 
which  they  were  all  merged  in  one  company,  and  the  price  continued  the  same? 

Mr.  Schwab.  Quite  correct. 

That  is  from  Mr.  Schwab's  testimony  before  the  Ways  and  Means 
Committee. 

Mr.  Gary.  I  want  to  say  this.  I  believe,  so  far  as  the  business 
part  of  the  organization  of  the  United  States  Steel  Corporation  is 
concerned,  that  I  am  as  familiar  as  anyone  with  it.  I  think  I 
had  more  to  do  with  that  proposition  than  anyone  else.  I  think 
Mr.  Morgan  relied  upon  me  to  a  large  extent  with  reference  to  the 
business  part  of  it,  and  the  question  of  a  tube  company,  a  proposed 

1  Dates  thus  in  original.  Should  be  1898,  the  year  the  Federal  Steel  Co.  was 
formed. — Ed. 

2  Date  in  error. — Ed. 


Formation  of  United  States  Steel  Corporation    93 

tube  mills,  by  Mr.  Carnegie,  did  not  enter  into  the  calculations,  so 
far  as  I  know.  I  can  not  say  what  was  in  Mr.  Carnegie's  mind  or 
in  the  minds  of  others. 

Mr.  Bartlett.  On  page  1641  of  the  same  hearing  before  the  Ways 
and  Means  Committee,  Mr.  Schwab  testified  as  follows: 

Mr.  Schwab.  The  consolidation,  as  you  term  it.  of  the  steel  corporations  in 
about  the  year  iqoi  came  about  in  this  way: 

Mr.  Morgan  asked  me  if  Mr.  Carnegie  wanted  to  sell  his  interests  in  iron  and 
steel;  that  he  then  had  large  interests  in  the  Federal  and  other  companies.  I 
approached  Mr.  Carnegie,  and  Mr.  Carnegie  said  he  would  sell,  and  we  sold 
our  company  to  Mr.  Morgan,  under  conditions  with  which  you  arc  all  familiar. 
We  knew  the  properties  Mr.  Morgan  controlled  and  upon  which  he  was  to  give 
us  a  mortgage  bond,  and  that  is  all  there  was  to  it. 

Mr.  Gary.  I,  of  course,  can  not  speak  for  anyone  else  but  myself. 
I  have  given  my  recollection  of  the  facts  leading  up  to  and  resulting 
in  the  formation  of  the  United  States  Steel  Corporation,  from  my 
standpoint,  and  from  my  own  connection  and  knowledge.  I  can  not 
speak  for  others.  I  do  not  know  what  was  in  their  minds.  I  only 
know  of  my  connection. 


Mr.  Young.  Now,  you  will  remember  when  we  adjourned  last 
night  you  were  just  starting  to  make  a  statement  of  the  competition 
which  existed  between  the  different  units  of  the  United  States  Steel 
Corporation  before  they  were  consolidated  into  that  company. 
Please  proceed  with  that. 

Mr.  Gary.  The  Carnegie  Steel  Co.,  the  subsidiary  companies  of 
the  Federal  Steel  Co.,  the  American  Steel  Hoop  Co.,  and  the  Na- 
tional Steel  Co.  were  to  some  extent  in  competition.  The  four  com- 
panies were  not  competitive  with  one  another  on  all  the  lines  of  the 
production  of  the  respective  companies.  The  greater  part  of  the 
National  Steel  Co.'s  product  was  billets  and  sheet  bars  and  were 
sold  to  the  American  Tin  Plate  and  also  to  the  Sheet  Steel  Co.  I 
thought  I  could  give  you  now  the  percentage  perhaps  of  the  com- 
petition, but  I  can  not  do  that  without  further  inquiry. 

The  American  Wire  &  Steel  Co.,  the  National  Tube  Co.,  the 
American  Tin  Plate  Co.,  the  American  Sheet  Steel  Co.,  the  Ameri- 
can Bridge  Co.,  and  the  Lake  Superior  Consolidated  Iron  Mines 
wrere  not  in  competition  with  one  another  or  with  the  other  com- 
panies.   When  we  commenced  business 


94  Industrial  Combinations  and  Trusts 

Mr.  Young  (interposing).  Before  you  go  on  with  that,  will  you 
state  what  were  the  articles  manufactured  by  these  companies  in 
the  first  group;  what  competing  company  did  compete? 

Mr.  Gary.  I  stated  that  the  other  day  about  as  fully  as  I  can.  I 
would  say  that  the  principal  competition  was  between  the  Illinois 
Steel  Co.  and  the  Carnegie  Co.  in  the  sense  of  making  the  same 
articles  or  some  of  the  same  articles;  they  were  substantially  in  com- 
petition. I  do  not  wish  to  minimize  that.  That  is  true  in  the  manu- 
facture of  rails  particularly.  So  far  as  products  are  concerned,  they 
were  in  substantial  competition,  and  I  would  say  that  those  were 
the  principal  articles. 

However,  as  you  know,  the  freight  rates  from  Pittsburg  to  Chi- 
cago are  quite  large  and  I  believe  at  that  time  were  in  the  neighbor- 
hood of  $3  per  ton.  The  market  of  the  Illinois  Steel  Co.  was  in  the 
great  and  growing  West  largely.  That  is,  they  supplied  largely  the 
western  railroads  who  had  terminals  in  Chicago,  and  of  course  they 
did,  to  some  extent,  furnish  rails  to  railroads  which  came  from  the 
East  and  had  their  terminals  in  Chicago,  but  the  Carnegie  Steel 
Co.  in  turn  had  a  natural  market  which  surrounded  its  plant — that 
is,  the  railroads  having  terminals  in  Pittsburg — and  when  you  con- 
sider the  respective  territory  or  fields  of  the  two,  there  was  not  so 
much  competition  as  it  would  appear,  although  it  is  the  fact  that 
the  Carnegie  Co.  did  in  time  come  into  the  western  field  and  into 
territories  which  were  not  controlled  to  the  extent  at  that  time  at 
least  of  selling  rails,  I  believe,  as  low  as  $16  a  ton,  at  a  time  when 
the  Illinois  Steel  Co.  was  considering  going  into  the  hands  of  a 
receiver  and  came  very  near  it.  It  did  not  pay  any  dividends,  so 
far  as  I  know,  and  I  believe  it  did  not  pay  any  dividends  at  all, 
up  to  1899. 

Mr.  Bartlett.  Right  there.  When  was  the  Federal  Steel  Co. 
formed? 

Mr.  Gary.  In  1898. 

I  believe,  perhaps,  if  unrestricted  and  unchecked  destructive 
competition  had  gone  on  the  Illinois  Steel  Co.  would  undoubtedly 
have  been  driven  out  of  business  and,  perhaps,  I  might  say  more. 
I  do  not  say  it  with  a  view  of  casting  any  reflection  upon  anyone's 
management,  but  it  is  not  at  all  certain  that  if  the  old  management 
or  the  management  which  was  in  force  at  one  time  had  continued, 
the  Carnegie  Co.  would  not  have  driven  entirely  out  of  business 
every  steel  company  in  the  United  States.  Perhaps  you  are  suffi- 
ciently familiar  with  the  facts  to  determine  whether  that  is  a  justi- 


Formation  of  United  States  Steel  Corporation    95 

fied  statement,  but  certainly  that  is  the  opinion  of  a  great  many 
different  people,  notwithstanding  conditions  had  improved  after 
the  Federal  Steel  Co.  was  formed  and  everyone  was  getting  on  a 
better  basis  and  we  had  reached  the  point  where  we  saw  it  was  pos- 
sible to  organize  a  company  which  would  be  self-contained  and 
which  would,  as  I  have  said,  secure  a  very  large  proportion  of  the 
export  business. 

Exhibit  3 

testimony  of  chas.  m.  schwab1 

The  Chairman.  Tell  us  who  sat  next  to  you. 

Mr.  Schwab.  Mr.  Morgan  sat  next  to  me  on  my  right  and  Mr. 
Simmons  at  my  left.  There  were  distinguished  men  of  New  York 
present — Mr.  Harriman,  Mr.  Morton,  Mr.  Carnegie,  Mr.  Phipps, 
and  a  great  number — 70  or  80.  The  names  are  probably  available, 
if  you  would  like  to  have  them.  I  went  home  from  that  dinner  to 
Pittsburg,  and  thought  no  more  about  the  matter  for  some  time. 
One  day  I  had  a  telephone  call  from  Mr.  John  Gates,  from  New 
York,  a  long  distance  call,  who  asked  me  if  I  would  meet  Mr. 
Morgan  in  Philadelphia  the  following  day.  I  told  him  that  I 
would.  I  went  to  Philadelphia,  and  Mr.  Gates  telephoned  that 
Mr.  Morgan  was  ill,  and  so  I  met  Mr.  Morgan  at  his  house  in 
New  York,  I  think,  the  day  following,  or  probably  the  same  day. 
Very  shortly,  at  any  rate. 

Mr.  Morgan  then  asked  me  to  go  over  with  him  again  in  more  de- 
tail the  substance  of  what  I  had  talked  about  at  the  dinner,  and  we 
spent  several  hours  in  doing  so.  There  were  other  gentlemen  pres- 
ent at  that  meeting,  and  the  whole  matter  was  discussed  most 
thoroughly  from  the  point  of  view  that  I  have  spoken  of  at  that 
interview. 

The  Chairman.  You  were  the  only  speaker  at  that  dinner? 

Mr.  Schwab.  I  was. 

The  Chairman.  And  you  spoke  for  an  hour  or  so? 

Mr.  Schwab.  I  would  say  so;  yes,  sir. 

The  Chairman.  And  Mr.  Morgan  requested  that  you  go  over  with 
him  again  in  detail  fully  all  the  arguments  that  you  had  made  at  the 
previous  dinner? 

Mr.  Schwab.  I  will  not  say  arguments — statements  of  fact, 
statements  of  opinion,  rather;  quite  so.    Then,  of  course,  he  asked 

1  Hearings  before  the  Committee  on  Investigation  of  United  States  Steel  Cor- 
poration, 62nd  Cong.,  2nd  Sess.,  ioii-iQi2,pp.  1273-79,  1311-14. 


96  Industrial  Combinations  and  Trusts 

me  questions  about  it,  and  finally  said  to  me,  within  a  day  or  so, 
that  he  was  fully  convinced  about  the  advantages  of  such  an  organi- 
zation. 

The  Chairman.  That  is,  one  corporate  entity? 

Mr.   Schwab.  The  Steel  Corporation  as  to-day  formed;  yes. 

He  asked  me  if  I  could  get  a  price  from  Mr.  Carnegie  at  which  he 
would  sell  his  works.  I  had  not  taken  the  matter  up  with  Mr. 
Carnegie  at  all,  had  not  spoken  to  him  of  my  visit  to  Mr.  Morgan. 
In  the  course  of  a  week  or  so,  spending  the  day  with  Mr.  Carnegie, 
a  favorable  opportunity  arrived,  and  I  did  tell  him  what  I  had  said 
to  Mr.  Morgan,  and  advised  Mr.  Carnegie,  at  his  age  and  with  his 
desire  in  life,  philanthropic  in  character,  that  he  ought  to  sell  his 
plant,  and  I  told  him  how  I  thought  it  might  be  done.  It  was  with 
a  great  deal  of  reluctance  that  Mr.  Carnegie  finally  did  agree  to  sell 
his  plant,  and  I  might  say  to  you  that  it  was  my  opinion  that  he 
afterwards  regretted  very  much  that  he  had  made  a  price  upon  his 
plant. 

The  Chairman.  Did  Mr.  Morgan  indicate  to  you  anything  about 
the  limit  of  cost  at  which  those  properties  could  be  bought?  In 
other  words,  were  you  instructed  to  get  an  option  at  not  to  exceed 
$500,000,000,  for  instance,  or  to  buy  them  at  any  price? 

Mr.  Schwab.  No;  I  had  no  authority  to  negotiate  anything  of 
that  kind? 

The  Chairman.  Was  there  any  concern  on  the  part  of  the  pur- 
chasers as  to  the  price? 

Mr.  Schwab.  My  only  advice  from  Mr.  Morgan  was  to  get  a  price 
from  Mr.  Carnegie,  at  which  price  he  would  see  if  they  could  afford 
to  purchase  the  property.  I  got  the  price  from  Mr.  Carnegie  and 
took  it  to  Mr.  Morgan,  and  beyond  being  consulted  with  reference 
to  general  views,  values  of  the  properties,  probable  earnings,  and  so 
forth,  I  had  nothing  further  to  do  with  the  organization  of  the 
United  States  Steel  Corporation. 


Mr.  Bartlett.  The  consolidation,  as  I  understand,  of  the  United 
States  Steel  Corporation  was  about  1901? 

Mr.    Schwab.    Yes,  sir. 

Mr.  Bartlett.  Prior  to  the  consolidation,  there  were  not  only 
rumors,  but  a  purpose  on  the  part  of  the  Carnegie  Steel  Co.  to  ex- 
tend its  business  in  building  tube  works? 


Formation  of  United  States  Steel  Corporation      97 

Mr.  Schwab.  There  has  been  a  report  current  that  the  Carnegie 
Steel  Co.  threatened  to  extend  into  the  line  of  tubes  prior  to  the 
formation  of  the  United  States  Steel  Corporation,  and  that  that  had 
something  to  do  with  the  formation  of  the  United  States  Steel  Cor- 
poration. I  want  to  say  that  the  Carnegie  Steel  Co.'s  intention  to 
extend  their  lines  into  tubes  was  the  same  practice  that  they  had 
followed  in  all  their  manufacturing,  which  was  to  gradually  extend 
their  lines  of  manufacture  into  different  articles.  That  is  what  we 
intended  to  do  in  tubes,  and  there  was  no  threat  or  menace  or  any- 
thing regarding  it. 

Mr.  Bartlett.  Except  the  publication  in  the  newspapers  that 
they  intended  to  do  so? 

Mr.  Schwab.  I  do  not  know  whether  it  was  published  at  that 
time,  or  after  the  formation  of  the  United  States  Steel  Corporation. 

The  Chairman.  Was  that  not  the  statement  of  Mr.  Carnegie, 
mentioned  by  Mr.  Gates,  that  he  was  going  to  put  up  a  tube  mill  on 
Lake  Erie 

Mr.  Schwab  (interrupting).  At  Conneaut. 

The  Chairman.  That  is  on  the  line  of  the  Lake  Erie  &  Bessemer 
road? 

Mr.  Schwab.  Yes,  sir. 

The  Chairman.  Did  not  that  disturb  very  vitally  the  tube  com- 
pany? 

Mr.  Schwab.  Well,  if  it  did,  I  did  not  know.  I  knew  Mr.  Con- 
verse and  other  people  connected  with  the  tube  industry.  I  visited 
their  works  at  the  time.  I  prepared  the  plans  for  the  works  at 
Conneaut,  and  from  all  I  knew  of  their  feelings,  they  were  not  seri- 
ously alarmed  at  our  going  into  the  tube  business.  They  felt  that  it 
was  inevitable  that  the  company  should  do  so. 

The  Chairman.  Is  Mr.  Converse  a  man  who  would  be  seriously 
alarmed  unless  there  was  something  seriously  alarming? 

Mr.  Schwab.   He  is  very  reliable. 

The  Chairman.  He  is  a  man  like  most  all  the  ironmasters — a  man 
of  good  nerve,  fine  business  sense  and  courage? 

Mr.    Schwab.  He  is. 

The  Chairman.  And  if  he  or  his  company  were  alarmed  they 
would  be  apt  to  have  some  reason? 

Mr.  Schwab.  I  think  so. 

The  Chairman.  I  want  to  call  your  attention  to  an  excerpt  of  the 
minutes  of  the  National  Tube  Co.,  dated  January  15,  1901.  That 
was  about  the  time? 


98  Industrial  Combinations  and  Trusts 

Mr.  Schwab.  I  think  so. 

The  Chairman.  I  quote  from  a  copy  made  by  Mr.  MacRae,  the 
accountant  for  the  committee,  copied  by  him  and  verified  by  him 
from  the  minutes  of  the  National  Tube  Co.  He  is,  I  believe,  the 
president  of  the  Certified  Accountants  of  New  York: 

Book  marked  "No.  1,"  National  Tube  Co.,  from  January  15,  1901,  to  date, 
containing  all  minutes  of  said  company. 

Here,  under  this  date,  I  find  this  entry: 

Rumors  of  new  competition,  etc.  Mr.  Converse  said  that  there  were  rumors 
that  the  Carnegie  Co.  is  about  to  install  and  operate  a  tube  works  with  a 
capacity  of  280,000  tons  per  annum. 

Was  that  about  the  size  of  the  anticipated  tube  works? 
Mr.  Schwab.  Probably;  yes,  sir. 
The  Chairman  (reading): 

It  is  well  known  the  tendency,  lately  so  conspicuous,  to  establish  a  commu- 
nity of  ownership  or  a  unified  control  over  great  industries  as  the  only  means  of 
restraining  destructive  competition,  lead  to  the  incorporation  of  various  great 
companies. 

Was  that  the  motive  that  led  to  the  incorporation  of  the  Carnegie 
Steel  Co.? 

Mr.  Schwab.  It  was  not  my  understanding  of  the  motive.  May 
I  be  permitted  to  tell  you  something  relative  to  this  tube  company 
at  this  point  that  might  be  of  interest? 

The  Chairman.  To  return  to  this  matter — 

During  the  18  months  this  corporation  has  run  there  has  never  been  a  time 
when  it  could  not  have  manufactured  to  advantage  and  profit  material  in  com- 
petition with  nearly  all  of  the  numerous  industrial  groups,  including  the  Car- 
negie Co.,  but  the  policy  of  the  management  so  far  has  been  that  except  forced 
by  self-protection,  this  company  would  not  displace  a  ton  of  its  neighbor's  prod- 
uct by  entering  any  other  lines  than  strict  tubular  goods.  It  has  rigidly  con- 
fined itself  to  this  principle  up  to  this  time.  The  Carnegie  Co.  is  now  enjoying 
trade  in  plates  on  ships  at  the  rate  of  about  150,000  tons  per  annum  with  the 
National  Transit  Co.,  a  department  of  the  Standard  Oil  Co. 

Is  that  true? 

Mr.  Schwab.  We  sold  the  Standard  Oil  Co.  a  great  many  plates; 
yes,  sir;  that  is  true. 

The  Chairman  (reading): 

This  is  more  than  equal  to  any  tonnage  which  the  Carnegie  Co.  has  ever 
made  for  tubular  purposes.  From  this  it  will  be  seen  that  the  Carnegie  Co.  inter- 
ests have  been  protected  through  the  care  and  friendliness  of  the  Standard  Oil — 


Formation  of  United  States  Steel  Corporation      99 

Is  that  true? 

Mr.  Schwab.  Well,  I  was  not  aware  of  it. 

The  Chairman  (reading) : 

And  National  Companies,  and  under  the  full  belief  warranted  by  the  facts, 
statements,_  and  circumstances,  that  such  an  arrangement  would  fully  satisfy 
the  Carnegie  Co.  in  their  ample  demand  for  their  full  measure  of  steel  tonnage 
for  conversion  into  tubular  products.  In  all  of  the  arrangements  between 
the  National  Steel,  Republic,  American  Sheet  Steel  &  Plate,  and  others  of  the 
industrial  steel  groups,  it  has  been  the  unwritten  law  that  each  group  should 
confine  itself  to  the  fabrication  of  its  own  specialties  and  should  voluntarily 
refrain  from  using  constant  surplus  of  material  by  the  production  of  the  special 
product  of  its  neighbors.  If  this  unwritten  law  is  to  be  ruthlessly  disregarded 
by  the  Carnegie  Co.,  it  will,  of  course,  have  a  broader  significance  than  the 
mere  competition  with  our  own  products. 

Did  you  know  that? 

Mr.  Schwab.  I  never  heard  of  it. 

The  Chairman.  Did  not  Mr.  Converse,  or  any  member  of  his 
company  ever  tell  you,  or  tell  the  Carnegie  Steel  Co.  that  the 
construction  of  these  tube  wTorks,  as  Mr.  Gates  has  testified  to, 
would  be  considered  as  a  declaration  of  war? 

Mr.  Schwab.  He  certainly  never  told  me. 

The  Chairman.  Did  you  know  or  did  anybody  inform  you  that  if 
those  works  were  constructed  gentlemen's  agreements  were  going  to 
smash,  and,  to  use  a  crude  expression,  "Devil  take  the  hindmost"? 

Mr.  Schwab.  I  never  heard  of  it. 

The  Chairman  (reading): 

It  is  the  intention  of  your  officers  to  continue  their  efforts  to  strengthen  our 
position  at  all  important  plants,  increase  our  raw-material  supply,  to  reduce  the 
fixed  charges  thereat,  and  to  combine  to  manage  the  affairs  of  this  company 
conservatively  and  economically. 

Did  you  ever  hear  of  that? 

Mr.  Schwab.  I  know  that  Mr.  Converse  would  naturally  do  that. 

Exhibit  4 

testimony  of  andrew  carnegie  1 

Mr.  Sterling.  I  want  to  ask  you  one  or  two  other  questions. 
In  your  opinion,  could  the  United  States  Steel  Co.  have  been  or- 
ganized with  any  reasonable  prospect  or  hope  of  being  a  very  im- 

1  Hearings  before  the  Committee  on  Investigation  of  United  States  Steel 
Corporation,  62nd  Cong.,  2nd  Sess.,  1911-1912,  pp.  2377-82,  2438-39,  2445-46, 
2505-13- 


ioo  Industrial  Combinations  and  Trusts 

portant  factor  in  the  manufacture  of  steel  and  iron  in  this  country 
until  they  had  bought  the  Carnegie  Steel  Co.? 

Mr.  Carnegie.  Judge,  I  do  not  want  to  flatter  our  old  concern.  I 
leave  other  people  to  judge  about  the  Carnegie  Steel  Co. 

Mr.  Sterling.  I  would  like  to  have  your  opinion  about  it. 

Mr.  Carnegie.  That  would  be  an  interested  opinion.  I  would  be 
an  interested  witness  on  that.  Excuse  me  from  being  compelled  to 
praise  our  own  organization. 

Mr.  Sterling.  I  will  ask  you  this  question,  then: 

Did  you  take  into  consideration,  when  you  fixed  a  price  on  the 
Carnegie  Steel  property,  the  fact  that  this  new  organization,  which 
evidently  was  seeking  to  take  in  all  the  iron  and  steel  properties  they 
could — did  you  take  into  consideration  the  fact,  in  fixing  the  price, 
that  they  could  not  get  along  without  your  property? 

Mr.  Carnegie.  Judge,  I  am  delighted  that  you  asked  me  that 
question.  Listen.  We  considered  $250,000,000  a  fair  price,  and 
Messrs.  Moore  considered  it  a  fair  price,  or  they  would  not  have 
paid  $2,000,000  for  the  option,  would  they?  I  will  ask  you  a 
question. 

Mr.  Sterling.  I  would  not  think  so. 

Mr.  Carnegie.  Thank  you. 

After  a  time  we  were  advised  of  the  necessity  for  a  broader  char- 
ter than  the  limited  manufacturing  company  gives  in  Pennsylvania, 
and  we  said,  "  We  shall  capitalize  it.  Two  hundred  and  fifty  million 
dollars  for  the  Carnegie  Steel  Co.  would  have  given  them  a  bar- 
gain. We  will  capitalize  it  at  the  $250,000,000,  and  we  will  take  the 
Frick  Coke  Co.   all  in,  at  $70,000,000,  making  $320,000,000." 

That  is  how  we  got  the  $320,000,000. 

Judging  anything  by  to-day,  Judge,  considering  what  we  put  in 
for  $320,000,000,  if  any  man  bought  it  for  three  times  that  amount 
he  would  be  safe. 

Mr.  Sterling.  You  did  get  more  than  that  for  it  when  you  sold 
it  to  the  United  States  Steel  Corporation? 

Mr.  Carnegie.  Yes.    Why?    Mr.  Schwab  has  stated  that  clearly. 

Mr.  Sterling.  Yes. 

Mr.  Carnegie.  And  he  has  more  to  do  with  these  things  than  any 
of  us.    He  was  in  charge,  and  he  is  able  and  bright. 

Mr.  Schwab  came  to  me  one  day  and  said  to  me: 

Mr.  Carnegie,  Mr.  Morgan  spoke  to  me  this  morning,  and  as  you  and  he  have 
always  been  good  friends  and  Morgan  &  Co.  have  always  been  your  agents  in 
banking,  he  said  he  did  not  like  to  approach  you  on  the  subject,  but  he  would 
like  to  know  whether  you  are  willing  to  retire  from  business. 


ary 

Formation  of  United  States  Steel  Corporation    ioi 

I  said: 

Well,  Schwab,  that  depends  upon  my  partners.  You  know  my  scheme  of 
life— that  I  have  resolved  that  my  old  age  is  to  be  spent  not  in  accumulating 
but  in  distributing  surplus  wealth,  and  I  am  ready  to  go  any  time;  but  it  shall 
be  as  my  partners  say. 

He  said  the  partners  were  all  willing.  And  he  came  back  a  few 
days  afterwards  and  said  that  Mr.  Morgan  would  like  to  know  what 
terms  I  would  take  for  my  steel  interests.  And  Mr.  Schwab  said 
to  me: 

I  think  the  option  we  gave — $250,000,000  and  of  course  the  Frick  $70,000,000, 
making  $320,000,000 — was  a  fair  option.  I  think  they  would  have  made  a 
great  deal  of  money  if  they  had  taken  it.     It  was  cheap. 

Mr.  Sterling  What  did  you  mean  by  saying,  "Of  course  the 
Frick  $70,000,000"?  Do  you  mean  the  H.  C.  Frick  Coke  Co.?  I 
want  that  for  the  sake  of  the  record.  I  understood  what  you  meant, 
but  for  the  sake  of  the  record,  is  that  it? 

Mr.  Carnegie.  Yes.    That  made  $320,000,000. 

And  Mr.  Schwab  said,  and  he  has  testified  since,  that  between  the 
time  that  we  gave  the  last  option  and  this  time  he  figured  up  ap- 
proximately that  we  had  gained  $100,000,000;  that  our  properties 
and  everything  else  were  worth  that;  and  therefore  he  thought  it 
would  be  a  fair  option  to  give  Morgan  adding  that  to-day;  and  I 
agreed  with  him. 

Mr.  Sterling.  That  would  be  $420,000,000? 

Mr.  Carnegie.  Yes;  exactly. 

Mr.  Sterling.  But  you  sold  it  for  more  than  $420,000,000? 

Mr.  Carnegie.  I  did  not,  sir. 

Mr.  Sterling.  You  did  not? 

Mr.  Carnegie.  No,  sir.  I  sold  it  and  got  two  hundred  and 
twenty  millions  of  bonds.    I  did  not  get  any  common  stock. 

The  world  is  altogether  mistaken  about  that.  All  that  I  asked 
Morgan  was  $420,000,000;  and  it  was  taken  at  that;  and  I  owned 
just  about  half,  and  I  got  $213,000,000. 

All  this  talk  about  my  holding  for  a  high  price  and  everything 
of  that  sort,  gentlemen,  has  no  more  foundation  than  that  you  held 
for  it.  I  considered  what  was  fair;  and  that  is  the  option  that  Mor- 
gan got.  Schwab  went  down  and  arranged  it.  I  never  saw  Morgan 
on  the  subject  nor  any  man  connected  with  him.  Never  a  word 
passed  between  him  and  me.  I  gave  my  memorandum  and  Morgan 
saw  it  was  eminently  fair.    I  have  been  told  many  times  since  by 


102  Industrial  Combinations  and  Trusts 

insiders  that  I  should  have  asked  $100,000,000  more  and  I  could 
have  gotten  it  easily. 

Once  for  all  I  want  to  put  a  stop  to  all  this  talk  about  Mr.  Car- 
negie forcing  high  prices  for  anything. 

There  is  the  truth,  gentlemen. 

Mr.  Sterling.  It  has  been  said  in  this  hearing,  Mr.  Carnegie,  and 
if  it  is  true  you  can  corroborate  it,  and  if  it  is  not,  you  ought  to  have 
the  right  to  refute  it,  that  the  Carnegie  Steel  Co.  got  a  great  deal 
more  than  its  property  was  worth,  for  the  reason  that  that  company 
knew  or  considered  that  its  property  was  absolutely  necessary  to  the 
United  States  Steel  Corporation  in  order  to  make  it  a  successful 
monopoly  of  the  steel  and  iron  business. 

Mr.  Carnegie.  Gentlemen^  we  had  made  up  our  plans  and 
bought,  I  think,  5,000  acres  of  land  at  Conneaut,  and  we  were  go- 
ing to  put  up  works  there  that  would  have  revolutionized  things, 
and  that  had  no  reference  to  Mr.  Morgan,  and  with  no  more  idea 
that  Mr.  Morgan  would  have  an  option  than  that  you  wrould.  We 
went  on  totally  regardless  of  anything  of  that  kind.  Our  plans 
were  being  made,  and  if  we  had  not  sold  out  we  would  have  been  a 
considerable  concern  by  this  time.    That  is  quite  true. 


Mr.  Gardner.  I  understood  you  to  say,  Mr.  Carnegie,  that  you 
and  Mr.  Schwab  decided  together  that  $420,000,000  was  a  fair  val- 
uation for  the  Carnegie  Steel  Co.? 

Mr.  Carnegie.  Yes.  Mr.  Schwab  had  some  statements.  I  can 
not  give  them  to  you  now,  but  Mr.  Schwab  can  give  you  the  whole 
matter.    He  attended  to  those  things. 

I  never  saw  Morgan;  I  never  saw  any  of  his  agents;  never  spoke 
to  any  other  man  about  it  except  Schwab,  and  then  just  one  or  two 
sentences.  Morgan  would  like  to  get  my  price.  Schwab  sat  down 
and  we  talked  it  over,  and  I  said: 

Yes;  I  am  quite  willing  to  sell  at  four  hundred  and  twenty  millions. 

And  Mr.  Schwab  has  stated  here  that  it  was  approximately  as  he 
estimated  the  advance  we  had  made  between  the  two  options. 

Mr.  Gardner.  I  wanted  to  know  whether  $420,000,000  was  the 
sum  you  set  as  the  value  of  the  Carnegie  Co. 

Mr.  Carnegie.  To  Mr.  Morgan. 

Mr.  Gardner.  Did  you  mean  $420,000,000  in  cash  or  $420,000,- 
000  of  the  securities  of  the  new  company? 


Formation  of  United  States  Steel  Corporation    103 

Mr.  Carnegie.  I  was  quite  willing  to  take  the  5  per  cent  bonds  of 
the  company.  You  know  they  are  quoted  at  115,  and  I  took  them 
at  par.    I  do  not  regret  doing  so. 

Mr.  Gardner.  Are  you  aware  that  the  United  States  Steel  Cor- 
poration issued  against  the  Carnegie  Co.  $492,000,000  worth  of  se- 
curities? 

Mr.  Carnegie.  I  am  not,  sir.    I  never  heard  of  it. 

Mr.  Gardner.  It  is  a  fact. 

Mr.  Carnegie.  I  have  never  heard  of  it. 

Mr.  Gardner.  To  be  accurate,  $492,006,160  was  the  amount  of 
securities  of  the  United  States  Steel  Corporation  which  were  put 
out  to  purchase  the  Carnegie  Co. 

Mr.  Carnegie.  Mr.  Gardner,  that  is  another  surprise  this  morn- 
ing. I  do  not  know  what  they  did  with  it.  This  I  assure  you:  I 
did  not  get  more  than  two  hundred  and  thirteen  millions  of  bonds — 
not  one  cent  more ;  nor  was  I  a  party  to  any  arrangement 

Mr.   Gardner.   You   took  your  payment   entirely  in  bonds? 

Mr.  Carnegie.  I  did. 


Mr.  Gardner.  I  want  to  ask  a  practical  question  to  clear  my 
mind.  Mr.  Gates,  in  his  evidence,  stated  Mr.  Carnegie  was  going 
to  build  some  tube  works  at  Ashtabula.  He  meant  Conneaut,  did 
he  not? 

Mr.  Carnegie.  Yes,  sir. 

Mr.  Gardner.  He  spoke  about  your  purpose  to  build  a  railroad. 
Was  there  any  such  proposition,  or  was  that  a  mistake  of  Mr.Gates? 

Mr.  Carnegie.  Therein  Mr.  Gates  was  quite  correct. 

Mr.  Gardner.  Was  it  a  railroad  to  be  built  from  Pittsburgh  to 
the  sea? 

Mr.  Carnegie.  Yes;  I  told  you  yesterday  that  Mr.  Vanderbilt 
sent  for  me 

Mr.  Gardner  (interposing).    I  mean  in  1900? 

Mr.  Carnegie.  Yes.  We  had  a  survey.  We  were  intending  to 
build  a  railroad  to  the  sea. 

Mr.  Gardner:  From  Pittsburgh  to  the  sea? 

Mr.  Carnegie.  Yes. 

Mr.  Gardner.  Mr.  Gates  said,  "And  a  railroad  from  Ashtabula 
to  his  works  in  the  Pittsburgh  district." 

Mr.  Carnegie.  Yes.  From  Conneaut. 

Mr.  Gardner.  He  said  Ashtabula. 


104  Industrial  Combinations  and  Trusts 

Mr.  Carnegie.  It  doesn't  matter. 

Mr.  Gardner.  And  that  railroad  was  already  built,  was  it  not? 

Mr.  Carnegie.  Yes. 

Mr.  Gardner.  I  just  wanted  to  get  the  facts  in  my  mind. 

Mr.  Carnegie.  Yes,  sir. 

Mr.  Gardner.  And  this  railroad  you  thought  of  building  was  an- 
other proposition  entirely,  was  it? 

Mr.  Carnegie.  Yes,  sir;  and  let  me  tell  you,  Mr.  Gardner,  it  was 
this  threatening  extension  of  railways,  and  especially  to  continue  the 
Conneaut  road  to  the  coke  ovens  of  the  Pittsburgh  district,  that  in- 
duced the  president  and  the  vice  president  of  the  Pennsylvania 
Road  to  ask  an  interview  with  me.    I  detailed  that  to  you  yesterday. 

Mr.  Gardner.  That  was  a  little  earlier.  I  wanted  to  get  at  the 
truth  or  otherwise 

Mr.  Carnegie  (interrupting).  That  truth  is  quite  true. 

Mr.  Gardner.  About  the  statement  that  about  the  time  when  the 
United  States  Steel  Corporation  was  formed,  it  was  your  intention 
to  build  tube  works  at  Conneaut  and  a  railroad  from  Pittsburgh  to 
the  sea. 

Mr.  Carnegie.  Yes,  sir;  and  we  bought  ground  for  the  purpose,  as 
I  told  you. 

Mr.  Gardner.  I  understand. 

Mr.  Carnegie.  And  also  the  plans  Mr.  Schwab  was  working  on, 
and  he  informed  me  that  he  would  break  ground  in  April,  and  that 
in  a  year  he  would  have  those  works  running. 

Mr.  Gardner.  The  contemporary  evidence  is  much  clearer  on 
that  than  it  is  on  the  railroad  proposition.  Did  you  not  take  any 
further  steps  than  having  the  surveys  made  for  the  railroad? 

Mr.  Carnegie.  No;  the  Pennsylvania  road  sent  for  me,  as  I  told 
you 

Mr.  Reed,  Sr.  (interposing).  May  I  explain  that?  What  Mr. 
Carnegie  is  talking  about  happened  in  1896,  when  the  Bessemer 
road  was  built.  What  you  are  talking  about,  Mr.  Gardner,  was  in 
1900,  or  along  about  there.  We  had  a  survey  corps  out  running  a 
line  from  Pittsburgh  to  connect  with  the  Western  Maryland  Rail- 
road. Our  idea  was  to  get  to  Baltimore  with  a  short  line.  We  had 
not  done  anything  except  start  the  surveying  corps.  We  did  not 
form  any  corporation  or  anything  of  that  sort. 

Mr.  Gardner.  It  was  a  matter  seriously  discussed? 

Mr.  Reed,  Sr.  Yes,  sir. 


Formation  of  United  States  Steel  Corporation    105 

Mr.  Beall.  Now,  about  this  railroad 

Mr.  Carnegie.  Which  one? 

Mr.  Beall.  That  one  that  was  dreamed  about  about  the  time 
that  the  Steel  Corporation  was  organized;  that  one  that  was  to  tap 
the  Western  Maryland,  I  believe,  and  reach  to  Baltimore.  I  have  a 
little  curiosity  to  know  just  what  was  contemplated  in  the  construc- 
tion of  that  railroad;  what  kind  of  a  road  it  was  to  be;  what  was  its 
purpose;  what  was  the  ultimate  end  and  object  in  view? 

Mr.  Carnegie.  The  ultimate  end  was  to  give  Pittsburgh  competi- 
tion of  railroads.     She  was  under  a  vast,  strong  monopoly. 

Mr.  Beall.  That  is,  of  the  Pennsylvania  Railroad? 

Mr.  Carnegie.  I  told  you  this  morning. 

Mr.  Beall.  Yes. 

Mr.  Carnegie.  I  told  you  that  this  morning;  how  I  had  seen  flour 
shipped  through  the  streets  of  Pittsburgh  to  New  York  from  Chi- 
cago cheaper  than  we  could  ship  it  from  Pittsburgh  to  New  York. 

Mr.  Beall.  Yes.  This  railroad  was  to  reach  deep  water,  tide- 
water? 

Mr.  Carnegie.  Certainly. 

Mr.  Beall.  At  Baltimore? 

Mr.  Carnegie.  Yes;  by  a  connection  with  one  of  the  railroads — 
the  Western  Maryland,  I  think. 

Mr.  Beall.  And  through  the  Chesapeake  Bay  out  to  the  ocean? 
It  was  intended  that  that  should  be  a  competitor  of  the  Pennsyl- 
vania Railroad? 

Mr.  Carnegie.  Certainly.  That  was  the  object.  And  the  Balti- 
more &  Ohio  also. 

Mr.  Beall.  What  would  have  been  the  mileage  of  that  road? 
Could  you  give  us  an  approximation  of  it? 

Mr.  Carnegie.  It  would  have  to  be  a  guess.  Judge  Reed,  what 
would  you  say  the  distance  was? 

Mr.  Reed,  Sr.  May  I  answer,  Mr.  Chairman? 

The  Chairman.  Certainly. 

Mr.  Reed,  Sr.  We  would  have  had  to  build  about  156  miles  from 
the  Union  Railroad  to  a  connection  with  the  WTestem  Maryland's 
extension  at  Cumberland. 

The  same  road  has  been  built  to-day  by  the  Pittsburgh  &  Lake 
Erie  over  the  line  we  surveyed,  and  will  be  opened  in  a  couple  of 
months. 

Mr.  Beall.  What  system  of  roads  does  that  now  belong  to — the 
New  York  Central? 


106  Industrial  Combinations  and  Trusts 

Mr.  Reed,  Sr.  No,  sir;  it  is  being  built  by  the  Western  Maryland 
and  the  Pittsburgh  &  Lake  Erie,  as  I  understand  it.  The  Pitts- 
burgh &  Lake  Erie  is  a  New  York  Central  road. 

I  do  not  know  who  owns  the  Western  Maryland  road  exactly. 
It  is  owned  around  Baltimore,  I  think. 

Mr.  Beall.  That  has  proven  to  be  a  very  profitable  railroad? 

Mr.  Reed,  Sr.  It  has  not  been  opened  up  as  yet.  It  is  to  be 
opened  up  in  about  two  months.  It  would  have  been  a  profitable 
road  if  we  had  built  it.  It  is  the  shortest  line  to  Baltimore  from 
Pittsburgh. 


The  Chairman.  Until  a  few  years  or  a  very  short  period  before 
the  formation  of  the  United  States  Steel  Corporation  there  were,  I 
believe,  three  large  steel  companies  engaged  in  the  manufacture  of 
semifinished  products — the  National  Steel  Co.,  the  Federal  Steel 
Co.,  and  the  Carnegie  Steel  Co.  All  three  of  these  companies,  I 
believe,  were  holding  companies,  I  believe.    Is  that  correct. 

Mr.  Carnegie.  They  were  holding  companies. 

Mr.  Reed.  Is  that  a  question  of  Mr.  Carnegie  as  to  whether  there 
were  any  other  manufacturers  of  semifinished  products? 

The  Chairman.  No. 

Mr.  Carnegie.  Those  three  were? 

The  Chairman.  There  were  these  three  large  holding  companies, 
engaged  in  the  manufacture  of  semifinished  products? 

Mr.  Carnegie.  What  do  you  call  semifinished  products? 

Mr.  Reed,  Sr.  Billets. 

Mr.  Carnegie.  We  did  not  sell  billets. 

The  Chairman.  By  that  I  mean  the  products  of  steel  which  were 
sold,  which  were  marketable  commodities  in  your  hands,  but  which 
were  raw  materials  to  the  concern  which  took  them  in  that  shape 
and  manufactured  them  to  a  still  higher  degree. 

Mr.  Carnegie.  We  sold  billets,  Judge  Reed  says;  and  skelp,  and 
so  on.    I  do  not  know  to  what  extent. 

The  Chairman.  I  will  explain  my  meaning  more  fully,  Mr. 
Carnegie. 

For  instance,  in  the  Carnegie  Co.  you  had  your  blast  furnaces? 

Mr.  Carnegie.  Yes. 

The  Chairman.  You  sold  pig  iron,  did  you  not? 

Mr.  Carnegie.  No.    We  used  our  pig  iron. 

The  Chairman.  You  did  not  sell  pig  iron  at  all? 


Formation  of  United  States  Steel  Corporation    107 

Mr.  Carnegie.  No;  I  do  not  think  we  ever  did. 

The  Chairman.  The  pig  iron  or  the  hot  metal,  usually  spoken  of 
as  pig  iron,  you  conveyed  in  ladles  to  your  furnaces? 

Mr.  Carnegie.  Yes. 

The  Chairman.  And  from  that  iron  you  made  steel? 

Mr.  Carnegie.  Yes. 

The  Chairman.  Did  you  sell  steel  billets? 

Mr.  Carnegie.  Yes;  I  think  we  sold  steel  billets. 

The  Chairman.  Those  billets  were  purchased  by  tube  companies 
or  by  companies  making  rails  or  by  companies  making  any  number 
of  things  and  made  into  finished  products,  were  they  not? 

Mr.  Carnegie.  Yes;  I  think  that  was  rather  in  the  early  days, 
was  it  not? 

The  Chairman.  Until  a  few  years  before  the  formation  of  the 
United  States  Steel  Corporation. 

You  did  not  sell  steel  ingots,  for  instance? 

Mr.    Carnegie.   No. 

The  Chairman.  You  manufactured  them  immediately? 

Mr.  Carnegie.  Yes. 

The  Chairman.  You  sold  billets  and  you  sold  sheet  and  tin  plate 
bars,  did  you  not? 

Mr.  Carnegie.  It  was  such  a  small  part  of  our  business  that  I 
never  went  into  that  very  much. 

The  Chairman.  Did  you  not  sell  millions  of  tons  of  billets  to  such 
companies  as  the  Shelby  Steel  Tube  Co.? 

Mr.  Carnegie.  We  sold  billets;  but  millions  of  tons?  No;  that 
is  far  beyond  anything  that  I  know  of.  I  do  not  pretend  to  know 
what  the  amount  was  that  we  sold.  But,  in  answer  to  your  ques- 
tion, yes;  we  sold  billets. 

The  Chairman.  Did  not  the  concerns  which  afterwards  formed 
the  American  Steel  &  Wire  Co.,  until  a  few  years  before  the  forma- 
tion of  the  United  States  Steel  Corporation,  buy  their  raw  mate- 
rial, as  a  rule,  from  the  Federal  Steel  Co.,  the  Carnegie  Steel  Co.,  or 
the  National  Steel  Co.? 

Mr.  Carnegie.  I  have  no  doubt  they  bought  billets.  I  should 
think  they  would  scarcely  buy  billets  from  us  in  Pittsburgh  when 
they  had  the  Chicago  mills  so  near. 

The  Chairman.  These  finishing  mills,  like  the  American  Steel  & 
Wire  Co.,  the  National  Tube  Co.,  the  American  Sheet  &  Tin  Plate 
Co.,  the  Shelby  Steel  Tube  Co.,  and  other  like  concerns,  hundreds  of 
others,  nail  mills,  and  the  like,  as  a  rule,  bought  their  raw  materials 


108  Industrial  Combinations  and  Trusts 

from  these  large  companies  making  the  semifinished  products,  and 
then  carried  them  still  further  in  the  state  of  manufacture  toward 
the  highly  finished  product;  is  not  that  true? 

Mr.  Carnegie.  Quite  so. 

The  Chairman.  You  remember  when  the  American  Steel  &  Wire 
Co.  was  formed,  do  you  not? 

Mr.  Reed,  Sr.  Give  the  year. 

Mr.  Reed.  1899,  was  it  not? 

The  Chairman.   1S89,  I  believe. 

Do  you  remember  when  the  National  Tube  Co.  was  formed 
and  when  the  American  Sheet  &  Tin  Plate  Co.  was  formed,  Mr. 
Carnegie? 

Mr.  Carnegie.  No. 

The  Chairman.  They  were  all  formed  between  1897,  I  believe, 
and  1900.     Is  that  right? 

Mr.  Reed,  Sr.  Yes. 

The  Chairman.  I  do  not  carry  any  figures  in  my  mind. 

I  see  that  Mr.  Herbert  Knox  Smith,  in  his  report  on  the  steel  in- 
dustry, makes  this  statement,  after  a  resume  and  report  of  these 
various  finishing  concerns  and  their  formation  into  large  holding 
companies: 

Immediately,  however,  came  the  next  step — 

That  is,  after  the  formation  of  the  American  Sheet  &  Tin  Plate 
Co.  and  the  American  Steel  &  Wire  Co.,  and  the  others — 

Immediately,  however,  came  the  next  step.  These  great  concerns  almost 
simultaneously  began  the  final  linking  up  of  the  chain  of  production.  Once 
begun  by  one  concern,  others  followed  in  self-defense.  The  "secondary"  com- 
panies began  to  reach  back,  acquiring  ore  reserves  and  crude  steel  plants. 
For  example,  in  1900,  the  Steel  &  Wire  Co.,  whose  supply  of  materials  had  pre- 
viously been  purchased  mainly  from  the  Carnegie  or  the  Federal  Co.,  planned 
to  make  its  own  steel;  likewise  the  National  Tube  Co.  The  "primary"  con- 
cerns, finding  these,  their  chief  customers,  turning  into  rivals,  retaliated  by 
reaching  forward  to  the  manufacture  of  finished  products. 

Paramount  in  importance  was  the  ore.  The  recognition  of  that  importance 
came  strangely  late,  but,  once  recognized,  it  became  an  axiom  that  no  large 
concern  could  stay  in  the  business  unless  fortified  by  its  owu  ore  reserves.  By 
1900  the  bulk  of  the  Lake  ore  was  in  the  hands  of  less  than  a  dozen  companies, 
with  a  similar  concentration  in  coking  coal. 

Such  efforts  on  the  part  of  these  great  concerns,  in  striving  each  to  "integrate," 
to  make  itself  wholly  independent,  threatened  to  result  in  a  great  and  sudden 
increase  and  duplication  of  the  steel  producing  and  finishing  capacity  of  the 
country,  and  to  involve  them  also  in  an  invasion  of  each  other's  business. 


Formation  of  United  States  Steel  Corporation    109 

Do  you  remember  when  that  transition  stage  was  occurring? 
Mr.  Carnegie.  I  think  that  is  remarkably  well  described.     I 
think  that  gives  you  the  situation. 
The  Chairman.  I  think  so. 
Again,  quoting  from  page  18  of  Mr.  Smith's  report: 

Thus  there  was  suddenly  revealed  to  the  industry  what  the  trade  press  at  the 
time  called  "the  impending  struggle  of  the  giants,"  a  contest  between  great 
concerns  who,  under  such  circumstances,  might  be  forced  to  work  out  in  rig- 
orous competition  the  survival  of  the  fittest. 

Such  were  the  conditions  in  the  steel  industry  in  1900.  The  spark  that 
lighted  the  train  was  the  threat  of  the  Carnegie  Co.  to  erect  a  great  tube  plant 
near  Cleveland,  thus  invading  the  field  of  finished  manufacture. 

I  read  that  word  "  threat"  because  it  is  so  written  here.  I  do  not 
mean  to  imply  that. 

Mr.  Carnegie.  I  quite  understand,  Mr.  Chairman. 

The  Chairman.  I  do  not  mean  to  imply  that  you  made  any 
threat.  I  would  rather  be  inclined  to  believe  that  your  determina- 
tion to  build  this  great  tube  company  would  naturally  cause  some 
concern  to  your  competitors. 

Mr.  Carnegie.  The  National  Tube  Co.  was  one  with  which  we 
had  an  agreement.  They  bought  billets  from  us,  and  they  made 
their  tubes.    They  were  at  McKeesport. 

Mr.  Reed,  Sr.  Their  main  plant  was  at  McKeesport,  and  they 
had  another  at  Riverside,  near  Wheeling. 

Mr.  Gardner.  There  were  some  10  tube  plants  of  the  National 
Tube  Co.? 

Mr.  Reed,  Sr.  They  have  about  eight,  I  believe. 

Mr.  Carnegie.  May  I  confirm  an  impression  from  the  Judge,  be- 
cause he  knows  and  I  do  not? 

The  Chairman.  Certainly. 

Mr.  Carnegie.  My  impression  is  that  the  National  Tube  Co. 
had  been  reorganized  and  put  upon  the  market,  had  it  not,  by 
Mr.  Moore? 

Mr.  Reed,  Sr.  The  National  Tube  Co.  has  nothing  to  do  with 
Mr.  Moore. 

Mr.  Carnegie.  But  there  were  others.  What  had  the  National 
Tube  Co.  to  do  with  it? 

Mr.  Reed,  Sr.  Will  the  committee  permit  me  to  state? 

Mr.  Carnegie.  I  do  not  know  how  these  steel  mills  were  situated, 
as  to  the  details. 

Mr.  Reed.  The  National  Tube  Co.  was  independent.    It  was  not 


no  Endustrial  Combinations  and  Trusts 

affiliated  with  any  concern.  The  National  Steel  Co.  was  Judge 
Moore's  concern,  that  supplied  the  raw  material  for  the  sheet  and 
tin  plate  and  steel  hoof  business. 

Mr.  Gardner.  The  National  Tube  Co.  was  regarded  as  one  of  the 
Morgan  group,  was  it  not? 

Mr.  Reed.  Yes. 

Mr.  Gardner.  The  National  Steel  Co.  was  regarded  as  one  of  the 
Moore  group? 

Mr.  Carnegie.  Why  was  it  regarded  as  one  of  the  Morgan  group 
— the  National  Tube  Co.? 

Mr.  Reed,  Sr.  It  has  been  reorganized  and  financed  through 
Mr.  Morgan's  office. 

Mr.  Carnegie.  Now  we  are  getting  at  it.  I  remember.  I  was 
afraid  to  state  it  until  it  was  confirmed.  The  National  Steel  Tube 
Co. 

The  Chairman.  I  do  not  want  to  interrupt  you,  Mr.  Carnegie, 
but  I  think  you  can  answer  two  questions  at  once,  because  I  shall 
refresh  your  memory  still  further,  so  that  you  can  tell  me  about  the 
whole  transaction. 

Mr.  Carnegie.  I  shall  be  delighted,  Mr.  Chairman. 

The  Chairman.  I  asked  Mr.  Schwab  about  it. 

Mr.  Carnegie.  What  do  you  want  to  ask  me  about  it  for,  if  you 
asked  Schwab?  [Laughter.]  Let  me  see  what  Schwab  said,  and 
I  will  know  what  was  done.    It  will  refresh  my  memory  at  once. 

The  Chairman.  All  right.  He  did  not  remember  it  until  I  called 
it  to  his  attention,  and  then  he  said  he  did  remember  it. 

I  read  now  from  the  minutes  of  the  National  Tube  Co.,  from  Jan- 
uary 15,  1 90 1,  to  date,  containing  all  minutes  of  the  said  company: 

Mr.  Converse  said  that  there  were  rumors  that  the  Carnegie  Co.  is  about  to 
install  and  operate  a  tube  works,  with  a  capacity  of  280,000  tons  per  annum. 

Mr.  Carnegie.  That  is  from  the  minutes? 

The  Chairman.  Yes.  This  is  from  the  minutes  of  the  National 
Tube  Co.,  and  shows  what  they  were  thinking  about  what  you  were 
doing: 

Mr.  Converse  said  that  there  were  rumors  that  the  Carnegie  Co.  is  about  to 
install  and  operate  a  tube  works,  with  a  capacity  of  280,000  tons  per  annum. 

During  the  18  months  this  corporation  has  run  there  has  never  been  a  time 
when  they  could  not  have  manufactured  to  advantage  and  profit  material  in 
competition  with  nearly  all  of  the  numerous  industrial  groups,  including  the 
Carnegie  Co.,  but  the  policy  of  the  management  so  far  has  been  that,  except 
forced  by  self-protection,  this  company  would  not  displace  a  ton  of  its  neigh- 


Formation  of  United  States  Steel  Corporation    hi 

bor's  product  by  entering  any  other  lines  than  strict  tubular  works.  It  has 
rigidly  confined  itself  to  this  principle  up  to  this  time.  The  Carnegie  Co.  is  now 
enjoying  trade  in  plates  on  ships  at  the  rate  of  about  150,000  tons  per  annum 
with  the  National  Transit  Co.,  a  department  of  the  Standard  Oil  Co. 

This  is  more  than  equal  to  any  tonnage  which  the  Carnegie  Co.  has  ever 
made  for  tubular  purposes.  From  this  it  will  be  seen  that  the  Carnegie  Co. 
interests  have  been  protected  through  the  care  and  friendliness  of  the  Standard 
Oil  and  national 1  companies,  and  under  the  full  belief,  warranted  by  the  facts, 
statements,  and  circumstances,  that  such  an  arrangement  would  fully  satisfy  the 
Carnegie  Co.  in  their  ample  demand  for  their  full  measure  of  steel  tonnage  for 
conversion  into  tubular  products.  In  all  of  the  arrangements  between  the  Na- 
tional Steel,  Republic,  American  Sheet  Steel  &  Plate,  and  others  of  the  indus- 
trial steel  groups  it  has  been  the  unwritten  law  that  each  group  should  confine 
itself  to  the  fabrication  of  its  own  specialties  and  should  voluntarily  refrain 
from  using  constant  surplus  of  material  by  the  production  of  the  special  product 
of  its  neighbors.  If  this  unwritten  law  is  to  be  ruthlessly  disregarded  by  the 
Carnegie  Co.,  it  will,  of  course,  have  a  broader  significance  than  the  mere  com- 
petition with  our  own  products. 

Mr.  Reed,  Sr.  What  did  Mr.  Schwab  say  to  that? 

The  Chairman.  I  asked  him,  "Did  you  know  that?"  and  he  re- 
plied, "I  never  heard  of  it."  Mr.  Schwab  said  he  knew  nothing 
about  it. 

I  am  asking  you,  Mr.  Carnegie,  if  you  remember  at  that  time 
this  protest  of  the  tube  company  against  your  constructing  that 
mill  at  Conneaut? 

Mr.  Carnegie.  I  never  heard  a  word  of  it.  If  Schwab  tells  you 
that  he  was  ignorant  of  it,  I  can  not  account  for  its  being  in  circu- 
lation. 

The  Chairman.  That  was  on  the  minutes  of  this  tube  company. 
That  is  what  they  did  think  about  it.  Why  was  it,  do  you  know, 
that  they  were  protesting  so  vigorously  against  your  constructing 
those  tube  works?  Could  they  not  make  tubes  just  as  cheap  as  you 
could  with  that  mill? 

Mr.  Carnegie.  You  must  ask  somebody  else  than  me,  Mr.  Chair- 
man. I  can  not  conceive  of  it.  All  of  this  is  new  to  me.  I  never 
heard  of  it  before. 

The  broad  way  that  I  understood  the  thing  was  this:  We  fur- 
nished tubes  for  the  National  Tube  Co.  and  they  finished  them; 
but  they  resolved  to  erect  blast  furnaces.  This  is  the  story  as  I 
remember  it:  They  went  on  to  erect  their  blast  furnaces.  Then, 
of  course,  they  were  able  to  make  their  own  material,  billets,  etc. 
That  is  how  they  left  us. 

'Thus  in  original. — Ed. 


ii2  Industrial  Combinations  and  Trusts 

The  Chairman.  You  say,  "That  is  how  they  left  us."  You  mean 
they  left  you  without  a  customer? 

Mr.  Carnegie.  Yes.  They  were  not  satisfied  with  manufactur- 
ing the  bilelts1  into  tubes.  They  wanted  to  make  the  whole  thing 
through. 

The  Chairman.  I  see. 

Mr.  Carnegie.  We  had  been  looking  for  a  site  where  we  could  put 
additional  works,  where  we  could  extend;  and  it  did  not  require 
much  consideration  to  let  us  see  that  if  we,  having  that  Conneaut 
Harbor,  put  a  modern  steel  plant  there,  the  ore  would  come  there 
and  be  dumped  from  the  boat  right  in  the  furnace  yard.  And 
Mr.  Schwab  drew  plans.  The  mill  was  1,100  feet  long,  and  the  ore 
stood  there,  and  the  coke  was  brought  up  from  our  own  mines  in 
the  cars  which  had  taken  the  ore  down  to  our  mills,  and  which 
would  otherwise  have  returned  empty;  and  there  we  stood,  with  the 
raw  material  there,  and  the  finished  tubes  would  come  out  here 
[indicating],  with  all  new,  modern  machinery,  no  men  hardly,  all 
rolls  conveying  the  masses  without  hand  labor,  and  all  that. 

Mr.  Schwab  showed  me  that  plan,  just  as  he  did  the  plan  for 
the  great  plant  for  the  open-hearth  furnaces  at  Homestead,  and  I 
said:  "Schwab,  what  difference  can  you  make?"  And  he  said, 
"Mr.  Carnegie,  not  less  than  $10  a  ton." 

Of  course,  you  must  remember  that  the  tube  works  were  very 
old,  and  had  been  running  for  a  long  while,  and  this  project  of  our1 
was  a  total  departure.    So  he  said:  "A  difference  of  $10  a  ton." 

When  the  National  Tube  Co.  left  us  and  began  to  build  furnaces 
for  themselves,  then  we  decided  that  we  would  build  at  Conneaut. 

That  was  one  reason.  That  was  not  the  whole  reason.  I  had  a 
great  desire  to  get  into  the  manufacture  of  steel  cars,  because  I  saw 
that  they  were  bound  to  supersede  wooden  cars,  just  as  I  saw  that 
iron  bridges  were  bound  to  succeed  wooden  bridges. 

That  was  the  situation.  That  is  all  I  know  of  our  relations  to  the 
National  Tube  Co. 

The  Chairman.  You  were  in  a  position  to  make  them  for  $10  a 
ton  less  than  your  competitors? 

Mr.  Carnegie.  Yes.  And  I  have  talked  to  Schwab  since  about 
it,  and  he  said:  "Yes.  I  could  have  fulfilled  my  estimate  there 
easily." 

The  Chairman.  I  find  here  in  this  report  of  Herbert  Knox  Smith: 
"Mr.  Carnegie's  personal  view  of  the  situation." 
1  Thus  in  original. — Ed. 


Formation  of  United  States  Steel  Corporation    113 

That  is  the  tube  situation. 

Mr.  Carnegie's  personal  view  of  the  situation  may  be  authoritatively  stated  as 
follows: 

The  National  Tube  Co.  formerly  obtained  its  steel  billets  from  the  Carnegie 
Co.,  but  decided  to  erect  blast  furnaces  and  mills  to  supply  itself.  Naturally, 
the  Carnegie  Co.  then  announced  that  it  would  be  forced  to  erect  mills  to  finish 
its  own  products  into  tubes. 

The  intention  of  the  Carnegie  interests  to  extend  their  manufacture  of 
finished  lines  had,  indeed,  been  contemplated  for  some  time.  In  an  interview 
in  the  London  Iron  and  Steel  Trades  Review,  of  May  12,  1899,  Mr.  Carnegie 
was  quoted  as  saying: 

This  is  from  the  New  York  Evening  Post,  January  21,  1901. 

Yes,  we  have  been  erecting  several  new  departments,  including  what  I 
believe  will  be  the  largest  axle  factory  in  the  world.  Why,  it  may  be  asked, 
should  steel  makers  make  plates  for  other  firms  to  work  up  into  boilers  when 
they  can  manufacture  the  boilers  themselves;  or  beams  and  girders  for  bridges 
when  they  can  turn  out  and  build  up  the  completed  article;  or  plates  for  pipes 
when  they  can  make  the  pipes? 

I  think  the  next  step  to  be  taken  by  steel  makers  will  be  to  furnish  finished 
articles  ready  for  use.  In  the  future  the  most  successful  firms  will  be  those 
that  go  the  furthest  in  this  direction. 

Mr.  Carnegie.  That  prophecy  has  come  true. 

Mr.  Gardner.  I  want  to  ask  Mr.  Carnegie  a  question,  if  I  may, 
Mr.  Chairman. 

The  Chairman.  Certainly. 

Mr.  Gardner.  In  this  Conneaut  plant  you  proposed  to  smelt  the 
iron  and  carry  it  through? 

Mr.  Carnegie.  Oh,  yes;  we  proposed  to  have  great  blast  furnaces 
of  the  most  approved  style. 

Mr.  Gardner.  You  were  going  to  take  the  iron  ore  right  off  the 
Lakes  and  turn  it  into  tubes  and  material  for  steel  cars? 

Mr.  Carnegie.  And  listen:  We  had  to  take  ore  down  to  Pitts- 
burgh— 150  miles. 

Mr.  Gardner.  Yes. 

Mr.  Carnegie.  The  ore  would  be  there  at  Conneaut,  coming  right 
off  the  Lakes.  The  cars  would  be  coming  back  empty  from  Pitts- 
burgh, and  there  are  our  coke  works,  and  we  would  load  our  coke 
into  those  empty  cars  and  take  that  fuel  to  Conneaut,  and  the  dif- 
ference between  the  cost  of  hauling  that  coke  to  Conneaut  and  haul- 
ing the  empty  cars  back  would  be  only  a  cent  or  two  per  ton;  the 
difference  between  a  loaded  train  of  ore  going  down  and  an  empty 
train  of  cars  coming  back  for  train  service  is  only  1  cent.  It  costs  1 1 
cents  for  train  service  coming  down  and  12  cents  for  the  loaded 


ii4  Industrial  Combinations  and  Trusts 

cars  going  up.  We  would  have  had  that  tremendous  advantage 
there.  I  wonder  that  the  steel  company,  instead  of  going  to  Gary — 
this  is  my  private  opinion,  not  to  be  publicly  spread;  this  is  confi- 
dential [laughter] — I  wonder  that  instead  of  going  to  Gary  they  did 
not  do  what  we  proposed.  If  they  had  spent  half  the  money  at 
Conneaut,  according  to  our  plans,  instead  of  spending  double  at 
Gary,  the  steel  stock  would  have  been  worth  more  than  it  is  to-day. 
[Laughter.] 

Mr.  Gardner.  Let  me  understand  what  you  just  said  about  train 
service. 

Under  the  old  system  it  cost  you  12  cents  for  hauling  the  ore — 
just  for  the  car  service? 

Mr.  Carnegie.  For  the  train  service — the  locomotive,  engineer, 
and  so  on. 

Mr.  Gardner.  The  actual  cost  of  running  the  train,  without  re- 
spect to  the  cost  of  the  roadbed  or  interest  on  your  money,  and  all 
that,  but  just  the  train  service? 

Mr.  Carnegie.  Yes. 

Mr.  Gardner.  It  cost  you  12  cents  a  ton  from  Conneaut  to  Pitts- 
burgh, and  1 1  cents  a  ton  to  haul  back  the  empty  cars? 

Mr.  Carnegie.  No 

Mr.  Reed,  Sr.  This  was  all  prophetic. 

Mr.  Carnegie.  They  were  all  loaded  cars. 

Mr.  Gardner.  In  your  proposition;  yes.  But  before  you  thought 
of  Conneaut,  then  you  had  to  haul  your  ore  down  from  Lake 
Superior  to  Pittsburgh  at  a  train-service  cost  of  12  cents  a  ton? 

Mr.  Carnegie.  That  is  what  I  was  told. 

Mr.  Reed.  From  Lake  Erie  to  Pittsburgh? 

Mr.  Gardner.  From  Lake  Erie  to  Pittsburgh;  yes,  I  should  say. 
And  hauling  back  the  empty  cars  cost  you  1 1  cents  a  ton  over  the 
same  route? 

Mr.  Carnegie.  Yes. 

Mr.  Gardner.  If  you  built  your  plant  at  Conneaut,  it  meant  this: 
That  your  ore  would  be  landed  at  Conneaut  and  would  be  con- 
verted into  steel  at  Conneaut,  instead  of  going  all  the  way  down 
to  Pittsburgh.  Meanwhile,  you  would  be  getting  your  coke  from 
an  intermediate  point,  to  wit,  Lorain? 

Mr.  Reed.  No;  from  Connellsville. 

Mr.  Carnegie.  From  our  own  coke  ovens;  from  the  Frick  Coke 
Co. 

Mr.  Gardner.  From  the  H.  C.  Frick  Coke  Co.  at  Pittsburgh? 


Formation  of  United  States  Steel  Corporation   115 

Mr.  Reed.  Connellsville. 

Mr.  Carnegie.  At  Connellsville,  which  is  in  the  Pittsburgh  re- 
gion. 

Mr.  Gardner.  You  would  be  getting  your  coke  in  trains  which  in 
their  northward  trip  would  be  full,  and  on  their  southbound  trip 
would  be  empty? 

Mr.  Carnegie.   Let  me  explain. 

We  had  a  great  many  blast  furnaces  at  Pittsburgh,  to  which  we 
had  to  take  ore,  you  understand? 

Mr.  Gardner.  I  see.  So  that  you  would  have  a  full  trip  for  the 
cars  both  ways? 

Mr.  Carnegie.  Yes.    We  balanced  the  coke  and  the  ore. 

Mr.  Gardner.  I  see  the  idea.  You  would  haul  your  coke  north  to 
Conneaut,  and  you  would  haul  your  ore  for  your  blast  furnaces  to 
Pittsburgh? 

Mr.  Carnegie.  Yes;  and  therefore  the  coke  for  Conneaut  would 
cost  us  nothing,  practically,  for  hauling. 

Mr.  Gardner.  I  get  the  idea  exactly.  The  transportation  of  it 
was  so  much  clear  gain,  because  you  had  to  pay  11  cents,  anyway, 
for  those  cars  to  return.    Is  that  the  idea? 

Mr.  Carnegie.  Yes.  And  therefore  we  saved  so  much.  We  got 
our  coke  delivered  at  Conneaut  for  11  cents,  and  we  got  our  ore 
delivered  at  Conneaut  a  great  deal  cheaper  than  at  Pittsburgh. 

Mr.  Gardner.  I  see.  You  had  a  full  trainload  coming  back,  in- 
stead of  having  an  empty  train  coming  back,  for  which  you  would 
have  had  to  pay  11  cents,  anyway? 

Mr.  Carnegie.  My  dear  sir,  the  railroad  had  to  be  maintained, 
whether  the  cars  were  going  up  empty  or  not.  Do  you  get  that 
point,  Mr.  Chairman? 

The  Chairman.  All  of  them,  and  then  some. 

Mr.  Gardner.  I  think  I  understand  that;  but  I  do  not  think  you 
understand  my  question  that  I  asked  you  a  while  ago.  I  think  your 
counsel  will  explain. 

The  Chairman.  As  I  understand,  your  road  had  to  be  maintained? 

Mr.  Carnegie.  Certainly. 

The  Chairman.  The  same  number  of  cars  had  to  be  run? 

Mr.  Carnegie.  Certainly. 

The  Chairman.  You  had  in  each  train  a  certain  number  of  empty 
cars,  and  the  only  real  additional  cost,  then,  was  the  train  service  for 
moving  these  empty  cars  along  with  the  other  cars  that  carried  ordi- 
nary freight.    Is  that  it? 


u6  Industrial  Combinations  and  Trusts 

Mr.  Carnegie.  It  was  all  clear  profit.  The  railroad  expenditures, 
the  interest,  the  deterioration  of  the  railroad,  and  all  that  was  the 
same.  But  if  you  hauled  an  empty  train  north  to  Conneaut  it  cost 
you  for  service  n  cents,  because  the  locomotives  used  a  little  less 
fuel  hauling  empty  cars  down  than  it  did  hauling  loaded  cars  up. 

The  Chairman.  I  see.  At  that  point,  realizing  these  great  advan- 
tages, you  did  not  talk,  about  that?  That  was  not  generally  known, 
was  it? 

Mr.  Carnegie.  We  did  not  publish  it  in  the  newspapers. 
[Laughter.] 

The  Chairman.  It  was  not  possible  that  Mr.  Morgan  or  any  of 
these  people  who  owned  the  steel  corporation  ever  knew  that  you 
had  these  big  advantages,  and  that  you  had  already  got  a  site  for 
that  plant,  was  it? 

Mr.  Carnegie.  I  would  not  say  what  they  knew. 

The  Chairman.  Was  anything  ever  said  about  this  great  steel 
plant  that  you  were  going  to  build  and  the  tremendous  advantages 
you  had? 

Mr.  Carnegie.  We  bought  the  land,  and  that  was  known. 

The  Chairman.  And  you  knew  what  you  were  going  to  do? 

Mr.  Carnegie.  Yes;  indeed  we  did.     [Laughter.] 

The  Chairman.  There  has  been  some  intimation  that,  even  with 
your  sanguine  temperament,  and  your  long  experience,  that  the 
Carnegie  works,  like  Napoleon  at  Waterloo,  were  face  to  face  with 
a  combination  so  extensive,  manned  by  men  so  experienced,  and  sus- 
tained by  resources  so  tremendous,  with  Judge  Gary,  for  instance, 
in  the  Federal  Steel  Co.,  with  Mr.  Gates  in  the  Steel  &  Wire  Co.,  and 
with  Mr.  Morgan  as  godfather  and  titular  head,  that  with  their 
organization  outside  of  the  Carnegie  Co.  possessed  sufficient  power 
to  have  made  it  no  longer  interesting  for  you  to  have  continued  in 
the  steel  business;  and  that  perhaps  you  escaped  destructive  compe- 
tition by  retiring  from  the  field. 

Was  it  possible  for  the  Carnegie  Co.  to  have  met  these  combined 
forces? 

Mr.  Carnegie.  Nonsense.  [Laughter.]  Why  did  Morgan  send 
word  to  me  that  he  would  like  to  buy  me  out? 

The  Chairman.  I  understand  that  he  was  uneasy  about  the  con- 
dition of  your  health,  and  gave  that  as  a  reason. 

Mr.  Carnegie.  I  was  still  able  to  take  sustenance.    [Laughter.] 

Mr.  Bartlett.  And  you  were  able  to  take  notice,  too,  I  think. 

Mr.  Carnegie.  There  is  a  different  story  than  that.    But  do  not 


Formation  of  United  States  Steel  Corporation    117 

let  us  go  into  that.  That  is  a  good  joke.  Ask  Schwab  about 
that. 

Mr.  Young.  One  gentleman  expressed  it  in  this  way:  He  said 
that  these  gentlemen  who  organized  the  Steel  Corporation  were 
about  to  make  a  very  fine  plum  pudding,  and  that  they  ascertained 
that  Mr.  Carnegie  had  all  the  plums.    [Laughter.] 

Mr.  Carnegie.  Gentlemen,  it  is  a  great  pity  that  they  ap- 
proached me  and  asked  if  I  would  retire  from  business. 

I  had  formed  my  career,  and  laid  down  the  law  to  myself  that 
I  would  not  spend  my  old  age  in  accumulating  more  dollars.  I 
showed  that  when  we  got  the  offer  of  $320,000,000  for  our  prop- 
erty, and  when  Mr.  Schwab  came  and  sat  down  and  showed  me 
what  he  thought  I  could  get,  I  said:  "Schwab,  it  is  just  as  my  part- 
ners say.  That  is  entirely  satisfactory  to  me.  It  is  all  the  money  I 
ever  want  to  make." 

I  did  not  realize  then  so  fully  that  it  takes  a  great  deal  more 
anxious  thought  and  labor  to  distribute  money  wisely  than  it  ever 
did  to  me  to  make  it. 

I  do  not  like  to  be  called  a  philanthropist.  That  means  a  man, 
usually,  with  more  money  than  brains. 

You  can  do  more  harm  distributing  money  unwisely,  and  do  more 
to  pauperize  people  than  you  can  do  good,  almost,  in  trying  to 
assist  them. 


CHAPTER  VII 
FACTORS'  AGREEMENTS 

NOTE 

The  general  aim  and  purpose  of  factors'  agreements  is  too  well 
known  to  require  any  extended  consideration  by  the  editor.  They 
may  like  pools  be  established  with  a  variety  of  purposes  in  view. 
Primarily  their  object  is  to  fix  prices.  But  they  may  be  readily 
used  to  suppress  competition  by  requiring  that  the  factor  shall  not 
deal  in  the  goods  of  a  competitor.  Other  objects  may  come  within 
the  scope  of  the  agreement  as  is  shown  by  the  exhibits  following. 

The  Dr.  Miles  Medical  Company  decision,  excerpts  of  which 
have  been  made  a  part  of  this  chapter,  dealt  a  severe  blow  to  the 
factors'  agreement.  Hereafter  it  will  probably  prove  a  somewhat 
emasculated  device  for  the  furtherance  of  combination  and  consoli- 
dation, and  the  limitation  of  competition. — Ed. 

Exhibit  i 
table  and  stair  oil  cloth  association  1 

This    agreement    made    this day    of one    thousand 

eight  hundred  and  eighty-seven,  between of  the  city  of 

State  of ,  party  of  the  first  part,  and  the  Table 

and  Stair  Oil-cloth  Association,  party  of  the  second  part,  witnesseth: 

First.  That  the  party  of  the  first  part  will,  during  the  contin- 
uance of  this  agreement,  on  or  before  the  tenth  day  of  each  cal- 
endar month,  and  beginning  on  the  ioth  day  of  July,  1887,  make 
and  render  to  the  commissioner  of  the  party  of  the  second  part  an 

accurate  statement  of  all  goods  of own  manufacture,  of  the 

character  specified  in  schedules  "A  and  B",  hereto  annexed,  sold 
and  shipped  by  the  party  of  the  first  part  during  the  preceding 
month,  which  statement  shall  contain  the  names  of  the  persons  to 

1  Report  of  the  Senate  Committee  on  General  Laws  on  Investigation  relative 
to  Trusts,  N.  Y.  Senate  Document,  No.  50,  1888,  pp.  609-617. 

118 


Factors'  Agreements  119 

whom  the  sales  were  made,  and  the  amount  of  each  kind  of  goods 
sold  to  each  purchaser;  such  statement  shall  be  verified  by  the 

oath  or  affirmation of  the  party  of  the  first  part,  and  some 

employe  of having  knowledge  of  the  facts,  and  there  shall 

be  incorporated  in  such  verification  a  statement  that  the  party  of 
the  first  part  has  not  made  any  sales  at  lower  prices  or  on  better 
terms  than  those  permitted  by  this  agreement.  Such  statement 
and  verification  shall  be  made  on  blank  forms  to  be  furnished  by 
the  party  of  the  second  part,  and  shall  conform  to  the  require- 
ments ot  l  such  blanks. 

Second.  That  on  or  before  the  fifteenth  day  of  June  in  each 
year,  the  party  of  the  first  part  will  pay  to  the  party  of  the  second 

part  twenty-five  cents  for  each  and  every  piece  of  goods  of 

own  manufacture,  except  goods  specified  in  schedule  "C",  hereto 

annexed,  sold  by during  the  preceding  six  calendar  months, 

and  on  the  fifteenth  day  of  December  in  each  year  twenty-five 
cents  for  each  and  every  piece  of  goods  of own  manufac- 
ture, except  goods  specified  in  said  schedule  "  C",  sold  by dur- 
ing the  preceding  six  calendar  months.  But  it  is  expressly  under- 
stood and  agreed  between  the  parties  hereto  that  if  any  dividend 
or  debt  duly  audited  shall  be  payable  from  the  party  of  the  second 
part  to  the  party  of  the  first  part,  the  amount  thereof  shall  be  off- 
set against  the  payment  above  provided  for  and  that,  if  after  such 
offset,  there  shall  be  a  difference  in  favor  of  one  party  as  against  the 
other,  only  such  difference  shall  be  paid  in  cash.  For  the  purposes 
of  this  section,  forty-eight  yards  in  length  of  shelf  oil-cloth,  and 
thirty-six  yards  in  length  of  stair  oil-cloth,  and  twelve  yards  in 
length  of  table  oil-cloth  shall  constitute  a  piece. 

Third.    The  party  of  the  first  part  further  agrees  that will 

keep  full,  true  and  accurate  books  of  account  of  all  goods  of  the 
character  specified  in  said  schedules  "A",  "B",  and  "C",  and  of  all 

such  goods  sold  and  delivered  by during  the  continuance  of 

this  agreement,  including  the  prices  and  terms  of  such  sales,  and 

that will  at  all  times  permit  the  commissioner  of  the  party 

of  the  second  part,  to  have  access  to  such  accounts  and  to  all  mer- 
cantile books  and  papers,  relating  to  this  business  of  the  party  of 
the  first  part,  for  the  purpose  of  comparing  such  books  and  papers 
with  the  reports  or  statements  made  by  the  party  of  the  first  part  to 
said  commissioner,  or  for  the  purpose  of  discovering  whether  the 
party  of  the  first  part  has  violated  or  evaded  any  of  the  covenants, 
1  Thus  in  original. — Ed. 


120  Industrial  Combinations  and  Trusts 

terms  or  conditions  hereinbefore  or  hereinafter  contained,  and 

that will  allow  such  commissioner  to  make  extracts  from  such 

books  and  papers  for  the  purpose  above  specified.    And  the  party 

of  the  first  part  further  agrees  that will  at  any  time,  when 

so  requested  give  such  commissioner  full  and  accurate  information 

relating  to  the  sale  of  goods,  and  that will  permit  and 

direct employes  to  give  said  commissioner  every  assistance 

and  information  in  any  examination  instituted  by  the  said  com- 
missioner for  the  foregoing  purpose,  and  that and 

....  employes  will  answer  under  oath,  if  said  commissioner  so  re- 
quests, any  questions  put  to and regarding 

any  alleged  violation  of  this  agreement  or  any  similar  agreement 
which  the  party  of  the  second  part  may  have  with  other  parties. 

Fourth.  The  party  of  the  first  part  further  agrees  that ....  will 
not  during  the  continuance  of  this  agreement  sell  any  goods  of  the 
kinds  specified  in  schedules  "A",  "B"  and  "C",  hereto  annexed 
at  lower  prices  than  may  from  time  to  time  be  fixed  by  the  party 
of  the  second  part. 

For  the  present  those  prices  are  fixed  in  accordance  with  schedules 
"A",  "B"  and  "C",  but  such  prices  may  from  time  to  time  be 
changed  by  the  party  of  the  second  part,  and  the  party  of  the  first 
part  agrees  that  on  receiving  notice  personally  or  by  mail  or  tele- 
gram of  such  changes  will  forthwith  advance  prices  to  conform  to 
any  advance  made  by  such  changes. 

Fifth.  But  it  is  understood  that  the  party  of  the  first  part  shall 
be  at  liberty  to  promise  the  following  rebates  to  be  paid  at  the  time 
and  in  the  manner  hereinafter  provided: 

To  purchasers  buying  in  any  one  season  from  members  of  the 
Table  and  Stair  Oil  Cloth  Association,  250  pieces  or  over  of  table 
oil-cloth,  a  rebate  of  fifteen  per  cent. 

To  those  buying  in  any  one  season  500  pieces  or  over  of  table  oil 
cloth  a  rebate  of  seventeen  and  one-half  per  cent. 

To  those  buying  in  any  one  season  100  pieces  or  over  of  shelf 
goods  of  twelve  yards  each,  a  rebate  of  fifteen  per  cent. 

To  those  buying  in  any  one  season  250  pieces  or  over  of  shelf 
goods  of  twelve  yards  each,  a  rebate  of  seventeen  and  one-half  per 
cent. 

To  those  buying  in  any  one  season  twenty-five  pieces  of  stair  oil- 
cloth, a  rebate  of  ten  per  cent. 

To  those  buying  in  any  one  season  fifty  pieces  of  stair  oil-cloth,  a 
rebate  of  fifteen  per  cent. 


Factors'  Agreements  121 

To  those  buying  in  any  one  season  100  pieces  of  stair  oil-cloth,  a 
rebate  of  seventeen  and  one-half  per  cent. 

But  it  is  understaod1  that  pieces  of  stair  oil-cloth  shall  not  average 
less  than  sixty  yards  to  the  piece. 

Sixth.  That  no  allowance  to  any  purchaser  for  damaged  goods  or 
for  goods  returned  or  for  any  other  reason  shall  be  made  except,  by 
the  consent  of  the  commissioner  of  the  party  of  the  second  part. 

Seventh.  But  it  is  expressly  agreed  by  the  party  of  the  first  part 
that ....  will  not  promise  such  rebate  to  any  purchaser  who  does  not 
expressly  agree  that ....  will  not  sell  any  goods  of  the  character 
specified  in  Schedule  "A",  whether  manufactured  by  the  members 
of  the  party  of  the  second  part  or  others,  at  lower  prices  or  on  better 
terms  than  those  fixed  by  said  schedules  as  the  same  now  stands  or 
as  they  may  hereafter  be  amended;  and  upon  the  express  condition 
that  such  rebate  shall  only  be  paid  in  case  the  purchaser  has  main- 
tained such  prices  and  terms,  and  upon  the  further  condition  that 
the  commissioner  of  the  party  of  the  second  part  shall  have  the  sole 
power  to  determine  whether  such  purchaser  has  violated  such  agree- 
ment. 

Eighth.  And  the  party  of  the  first  part  further  agrees  that  if  any 
purchaser  of  the  goods  named  in  Schedules  "A"  "B"  and  "C" 
shall  sell  such  goods  at  less  prices  and  on  better  terms  than  those 
from  time  to  time  prescribed  by  the  party  of  the  second  part,  or 
shall  supply  goods  to  any  one  selling  below  such  prices  and  terms 
after  receiving  notice  from  the  said  commissioner  requesting  him  not 
to  supply  such  persons  with  goods,  the  party  of  the  first  part  will 
immediately  on  receiving  notice  that  such  purchaser  has  sold  goods 
at  less  than  the  prices  and  terms  fixed  by  the  association,  or  has 
supplied  goods  to  others  not  maintaining  the  prices,  and  terms  fixed 
by  this  association,  cease  selling  goods  to  such  purchaser,  and  will 
cancel  any  unfilled  orders  given  by  such  purchaser. 

Ninth.  And  the  party  of  the  first  part  further  agrees  that  in  case 
....  shall  be  notified  by  the  commissioner  of  the  party  of  the  second 
part  that  any  purchaser  has  violated  such  agreement,. . .  .will  not, 
directly  or  indirectly,  pay  such  purchaser  the  rebate  to  which  he 
would  otherwise  be  entitled;  and  that  after  the  receipt  from  said 
commissioner  of  such  notification,. . .  .will  not  sell  such  purchaser 
any  goods  at  lower  prices  than  full  list  prices,  cash  on  delivery, 

without  discount;  and  that will  not  thereafter  offer,  or  promise, 

or  pay  such  purchaser  any  rebate  whatever  on  goods  bought  by  him, 
1  Thus  in  original. — Ed. 


122  Industrial  Combinations  AND  Trusts 

except  by  the  written  consent  of  the  party  of  the  second  part. 

The  rebates  above  provided  for  shall  not  be  paid  until  the  end  of 
the  season. 

Tenth.  At  the  end  of  each  season,  and  within  one  week  there- 
after, the  party  of  the  first  part  shall  report  to  the  commissioner  of 
the  party  of  the  second  part  the  amount  of  each  kind  of  goods  sold 
during  the  season  to  each  purchaser.  If  the  said  commissioner 
shall  be  satisfied  that  the  purchaser  has  not  violated  his  agreement 
to  maintain  the  price  and  terms  fixed  by  the  party  of  the  second 
part,  and  has  purchased  sufficient  to  entitle  him  to  a  rebate,  the 
said  commissioner  shall  send  to  such  purchaser  a  sight  draft  upon 
the  party  of  the  first  part,  for  the  amount  of  the  rebate  due  from  the 
party  of  the  first  part,  and  the  said  commissioner  shall,  at  the  same 
time,  notify  the  party  of  the  first  part  of  the  fact  that  he  has  drawn 
and  sent  such  draft. 

Eleventh.  But  it  is  further  understood  between  the  parties  hereto 
that  goods  may  be  sold  to  purchasers  transacting  business  outside 
of  the  United  States,  at  the  prices  and  terms,  and  on  the  conditions 
prescribed  in  schedule  "B",  hereto  annexed;  but  such  prices,  terms 
and  conditions  may  from  time  to  time  be  altered  by  the  party  of  the 
second  part;  and  the  party  of  the  first  part  agrees  that  on  receiving 

notice  of  such  changes  from  the  party  of  the  second  part will 

immediately  change  the  prices,  terms  and  conditions  of  such  sales, 
in  conformity  with  such  alterations. 

Twelfth.  It  is  further  understood  that  the  party  of  the  first  part 
shall  be  at  liberty  to  sell  goods  specified  in  Schedule  "A",  to  any 
member  of  the  Table  and  Stair  Oil-Cloth  Association  at  a  discount 
of  17-3^2  Per  cent  from  the  prices  named  in  Schedule  "A"  in  what- 
ever quantity  such  goods  may  be  sold. 

Thirteenth.    The  party  of  the  first  part  hereby  further  agrees 

that will  not  except  by  consent  of  the  party  of  the  second 

part,  coat,  finish,  or  print  any  goods  of  the  character  specified  in 
Schedules  "A",  "  B"  and  "  C"  for  any  party  (except  members  of  the 
Table  and  Stair  Oil-Cloth  Association)  who  contributes  either  by 
purchase  or  any  other  way  any  portion  of  the  materials  used  in 
such  goods. 

Fourteenth.    The  party  of  the  first  part  further  agrees  that 

. . .  .will  not  sell  goods  specified  in  Schedule  "A"  on  better  terms 
of  credit  than  sixty  days  from  date  of  invoice,  with  an  allowance  of 
two  per  cent  for  cash  within  thirty  days  of  date  of  invoice,  and  four 
per  cent  for  cash  paid  within  ten  days  of  date  of  invoice,  and  an 


Factors'  Agreements  123 

additional  allowance  at  the  rate  of  one  per  cent  per  month  for  pay- 
ments made  prior  to  the  day  on  which  invoices  may  be  dated;  and 

the  party  of  the  first  part  further  agrees  that will  in  no  case 

allow  the  above  discounts  except  for  cash  actually  paid  or  remitted 
on  or  before  the  expiration  of  the  periods  above  named. 

Fifteenth.  It  is  further  agreed  that  such  cash  discounts  shall  only 
be  allowed  on  invoices  of  goods  actually  shipped,  and  not  on  money 
paid  in  advance  or  anticipation  of  shipments,  and  that  all  invoices 
of  goods  shipped  between  August  first  and  December  first,  and 
between  February  first  and  June  first  of  any  year  shall  date  from 
the  day  of  shipment,  and  the  invoices  of  goods  shipped  between 
June  first  and  August  first  shall  not  date  later  than  August  first, 
and  all  goods  shipped  between  December  first  and  February  first 
shall  not  date  later  than  February  first. 

Sixteenth.  And  the  party  of  the  first  part  further  agrees  that .... 
....  will  not  sell  goods  of  the  kinds  specified  in  Schedule  "  C"  hereto 
annexed  on  any  other  terms  than  those  prescribed  in  said  Schedule 
"C",  but  such  terms  and  conditions  may  from  time  to  time  be  al- 
tered by  the  party  of  the  second  part,  and  the  party  of  the  first  part 
agrees  that  on  receiving  notice  of  such  alterations  from  the  party 
of  the  second  part will  immediately  change  terms  and  con- 
ditions of  such  sales  in  conformity  with  such  alterations. 

Seventeenth.    That  neither  the  party  of  the  first  part  nor  any 

agent,  agents,  employe  or  employes  of will  pay  any  freight 

to  any  purchaser  or  to  any  dealer  or  to  any  agent  of except 

that  the  party  of  the  first  part  may  pay  freight  to  New  York,  Phila- 
delphia, Baltimore  and  Newark,  and  expressage  or  freight  on  pack- 
ages delivered  in  Brooklyn,  Williamsburg  and  Jersey  City,  but  that 
goods  mentioned  in  schedule  "C"  may  be  delivered  freight  paid  in 
Boston,  Mass. 

Eighteenth.  That  the  party  of  the  first  part  will  not  directly  or 
indirectly  offer  or  give  to  any  purchaser  or  the  employe  or  agent  of 
any  purchaser  or  to  any  one  whomsoever,  any  gift,  bribe  or  pecu- 
niary advantage  (outside  of  the  intrinsic  value  of goods)  for 

the  purpose  of  obtaining  orders  for  or  effecting  sales  of  goods. 

Nineteenth.  That  the  party  of  the  first  part  will  not  carry  any 
stock  of  goods  in  any  place  or  places  other  than  New  York,  Phila- 
delphia Newark,  Montrose,  N.  Y.,  Astoria  and  Plainfield. 

Twentieth.    That  the  party  of  the  first  party  will  take  no  orders 
between  November  30,  and  May  31,  in  any  year  except  upon  the 
1  Thus  in  original. — Ed. 


124  Industrial  Combinations  and  Trusts 

distinct  agreement  with  the  purchaser  that  any  unfilled  portion  of 
the  order  shall  be  cancelled  on  the  thirty-first  of  May,  and  that. . . . 
will  take  no  orders  between  May  31,  and  November  30,  in  any  year, 
except  upon  a  similar  agreement  that  any  unfilled  portion  of  the 
order  shall  be  cancelled  on  the  thirtieth  day  of  November. 

Twenty-first.  For  the  purpose  of  this  agreement  a  year  is  divided 
into  two  seasons,  one  extending  from  May  31  to  and  including 
November  30,  and  the  other  from  November  30,  to  and  including 
May  31. 

Twenty-second.  And  the  party  of  the  first  part  expressly  agrees 
that. . .  .will  not  in  any  season  make  any  contract  or  agreement  for 
the  future  delivery  or  sale  of  goods  extending  beyond  such  season, 

nor  will quote  or  name  prices  for  goods  to  be  sold  or  delivered 

after  the  current  season  except  by  consent  of  the  party  of  the  second 
part. 

Twenty-third.  The  party  of  the  first  part  further  agrees  that. . . . 
will  make  no  guaranty  as  to  any  matter  whatsoever  except  the 
quantity  and  quality  of  goods  sold  by 

Twenty-fourth.  That  the  party  of  the  first  part  will  not  show  sam- 
ples of  new  styles  of  goods  and  will  not  solicit  or  take  orders  or  ship 
new  styles  of  goods  for  the  season  between  June  first  and  December 
first,  prior  to  June  first  in  any  year,  or  for  the  season  between 
December  first  and  June  first  before  December  first,  and  that  all 
original  sample  books  shall  be  of  the  uniform  size  of  nine  inches  by 
twelve  inches,  and  that  all  sample  books  sent  to  the  trade  shall  be 
cut  of  the  uniform  size  of  seven  inches  by  nine  inches  and  that  the 
party  of  the  first  part  will  supply  sample  books  of  no  other  size 
whether  paid  for  or  not. 

Twenty-fifth.    That  the  party  of  the  first  part  will  require  all 

salesmen  and  agents  in employ  to  sign  and  swear  to  a  written 

promise  binding  them  to  maintain  the  prices  and  terms  fixed  by  the 
party  of  the  second  part;  that  they  will  answer  under  oath  any  ques- 
tions that  may  be  put  to  them  by  the  commissioner  of  the  party  of 
the  second  part,  in  any  examinations  that  may  be  instituted  to 
him  for  the  purpose  of  ascertaining  whether  this  agreement  or  any 
similar  agreement  has  been  violated;  that  they  will  divide  no  com- 
mission with  purchasers,  and  that  they  will  neither  offer  or  1  pay 
any  money,  gift,  bribe,  or  other  valuable  inducement  in  order  to  ob- 
tain an  order  for  or  effect  a  sale  of  goods,  and  the  party  of  the  first 
part  agrees  that  on  being  informed  by  said  commissioner  that  any 
1  Thus  in  original. — Ed. 


Factors'  Agreements  125 

salesman  or  agent  has  violated  such  promise ....  will  immediately 

discharge   him   from employ,   and    that will   not 

knowingly  employ  any  salesman  or  agent  who  has  been  discharged 
from  the  employ  of  any  other  manufacturer  of,  or  dealer  in  table, 
stair  and  shelf  oil-cloths  for  such  an  offence. 

Twenty-sixth.    And  the  party  of  the  first  part  further  agrees  that 

will  employ  no  person  or  persons  as  agent  or  salesman  who 

is  interested  in  or  connected  with  any  concern  engaged  in  the  pur- 
chase and  sale  of  oil-cloths,  and  that will  employ  no  agent  in 

the  place  where own  store  or  factory  is  located,  and  that.  . .  . 

will  not  pay  any  agent  a  higher  commission  than  three  per  cent  on 
goods  sold  at  the  agent's  place  of  business  or  residence,  and  not  more 
than  five  per  cent  on  goods  sold  elsewhere,  such  commission  to  cover 
all  travelling  and  other  expenses. 

Twenty-seventh.  That  on  or  before  the  first  day  of  June,  1887, 
the  party  of  the  first  part  will  deposit  with  the  party  of  the  second 
part  the  sum  of  $ in  cash  or  convertible  securities  satis- 
factory to  the  party  of  the  second  part,  to  be  held  by  the  party  of 
the  second  part  as  security  that  the  party  of  the  first  part  will 
promptly  pay  to  the  party  of  the  second  part  any  sum  or  sums  of 

money  which  may  at  any  time  become  due  or  payable  from to 

the  party  of  the  second  part  under  any  of  the  provisions  of  this 
agreement. 

Twenty-eighth.  That  if  any  such  payment  shall  become  due  and 
remain  unpaid  for  the  period  of  one  week,  it  shall  be  lawful  for  the 
party  of  the  second  part  to  take  the  amount  thereof  from  any  funds 
in  its  hands  belonging  to  the  party  of  the  first  part,  or  if  such  funds 
are  insufficient,  to  sell  at  public  or  private  sale,  without  demand  of 
payment  and  without  notice  of  the  time  and  place  of  such  sale, 
sufficient  of  the  securities  deposited  with  it  by  the  party  of  the  first 
part,  and  out  of  the  proceeds  of  such  sale  to  take  and  retain  the 
amount  of  such  payments,  and  it  shall  be  the  privilege  of  the  party 
of  the  second  part  to  be  the  purchaser  at  any  such  sale. 

Twenty-ninth.  That  the  party  of  the  first  part  will,  at  the  demand 
of  the  party  of  the  second  part,  make  good  any  deficiency  which 
may  arise  in  the  cash  or  securities  so  deposited,  whether  such  defi- 
ciency be  caused  by  depreciation  in  market  value  or  by  deduction 
made  in  accordance  with  the  preceding  provisions. 

Thirtieth.    That  if,  at  any  time,  the  party  of  the  first  part, 

shall  refuse  to  give  the  commissioner  of  the  party  of  the  second 
part  access  to mercantile  books,  accounts,   or  papers,   or 


126  Industrial  Combinations  and  Trusts 

shall   refuse   to   permit   the   examination   of employes, 

or  shall  refuse,  when  requested,  to  give  accurate  and  full  informa- 
tion touching  any  matter  relating  to  the  sale  or  delivery  of 

goods,  in  any  case  where  the  said  commissioner  is  authorized  by 
this  agreement  to  request  such  examination  and  information;  or 
shall  wilfully  make  and  render  to  the  party  of  the  second  part,  or 
its  commissioner,  any  false  statement  as  to  the  amounts  and  kinds 
of  goods  sold  and  delivered  by ;  the  name  of  the  pur- 
chaser to  whom  sales  or  deliveries  were  made  or  as  to  the  prices, 

terms  and  conditions  of sales,  or  shall  wilfully,  directly  or 

indirectly  perform  any  acts  tending  to  nullify  or  evade  this  agree- 
ment, or  any  of  its  terms,  the  party  of  the  first  part  will,  on  con- 
viction thereof,  in  the  manner  prescribed  by  the  by-laws  of  the 
party  of  the  second  part,  forfeit  and  pay  to  the  party  of  the  second 
part,  for  each  and  every  offence,  the  sum  of  $500,  which  sum  is  here- 
by fixed  by  the  parties  hereto  as  liquidated  damages,  and  in  case 

the  party  of  the  first  part  shall  either or  through 

employes  directly  or  indirectly  fail  to  maintain  the  prices,  charges, 
terms  and  conditions  required  by  this  agreement,  shall  pay  to  the 
party  of  the  second  part  $500,  as  liquidated  damages  for  each  and 
every  offense,  and  in  case  the  party  of  the  first  part  shall  sell  to  any 
one  purchaser  during  any  one  season  more  than  500  pieces  at  lower 
prices,  or  on  better  terms  than  those  permitted  by  this  agreement, 
the  party  of  the  first  part  shall  in  addition  pay  to  the  party  of  the 
second  part  one  dollar  for  each  and  every  piece  in  excess  of  500  so 
sold,  which  sums  are  hereby  fixed  by  the  parties  hereto  as  liqui- 
dated damages,  and  the  sum  of  $100  as  liquidated  damages  for  any 
failure  to  make  the  statement  or  reports  required  by  this  agreement 
within  the  time  limited  therefor. 

Thirty-first.  In  consideration  whereof,  the  party  of  the  second 
part  agrees  to  sell  the  party  of  the  first  part,  at  par, certif- 
icates of  memberships,  such  certificates,  however,  to  be  always  held 
subject  to  the  conditions  imposed  by  the  by-laws  of  the  party  of 
the  second  part,  and  subject  to  redemption  purchase  and  forfeiture 
in  the  manner  prescribed  by  said  by-laws. 

Thirty-second.  And  the  party  of  the  second  part  further  agrees 
that  it  will  use  all  proper  efforts  to  further  the  business  interests 
of  the  party  of  the  first  part,  and  that  it  will  offer  suitable  rewards 
to  secure  the  conviction  of  any  manufacturer  who,  having  with  the 
party  of  the  second  part  an  agreement  similar  to  this,  shall  violate 
the  same  or  any  part  thereof. 


Factors'  Agreements  127 

Thirty-third.  It  is  mutually  agreed  between  the  parties  hereto 
that  the  commissioner  of  the  party  of  the  second  part  shall  decide 
any  questions  which  may  arise  as  to  the  meaning,  construction,  or 
interpretation  of  this  agreement  or  any  part  thereof,  and  that  his 
decision  shall  be  final  and  conclusive  upon  both  the  parties  hereto, 
both  as  to  the  questions  of  law  and  fact. 

Thirty-fourth.  It  is  further  agreed  between  the  parties  hereto 
that  if  the  party  of  the  first  part  is  accused  of  any  violation  of  this 
agreement  such  accusation  shall  be  referred  to  said  commissioner, 
whose  decision,  subject  only  to  the  conditions  imposed  by  the  by- 
laws of  the  party  of  the  second  part,  shall  be  final  and  conclusive 
upon  both  the  parties  hereto,  both  as  to  law  and  fact. 

Thirty-fifth.  Whenever  the  word  "goods"  occurs  in  this  agree- 
ment, it  shall  be  construed  to  mean  and  include  only  table,  stair, 
shelf,  and  enameled  oil-cloths. 

Thirty-sixth.  That  as  to  making  the  reports,  statements  and 
payments  required  by  this  agreement,  this  agreement  shall  continue 
in  force  up  to  and  including  the  fifteenth  day  of  June,  1888,  and  as 
to  other  matters  up  to  and  including  the  thirty-first  of  May,  1888. 

In  witness  whereof,  the  party  of  the  first  part  hath  hereunto 

set ,   and   the  party   of   the   second  part  hath 

caused  these  presents  to  be  signed  by  its  president. 

Exhibit  2 
american  tobacco  company  « 

P.  0.  Box  2591. 
New  York,  October  1,  1895. 

Dear  Sir. — We  will  be  glad  to  consign  to  you  for  sale,  on  commis- 
sion, our  various  brands  of  cigarettes,  such  cigarettes  to  be  sent  by 
us,  and  received,  sold  and  accounted  for  by  you,  upon  terms  and 
conditions  as  follows,  namely: 

First.  All  cigarettes  which  we  may  send  to  you,  you  are  to  sell 
to  the  retail  trade  only  for  retail  purposes;  you  are  to  sell  none  to 
other  than  retail  dealers  except  by  our  written  permission. 

Second.  You  shall,  at  all  times,  sell  our  cigarettes  at  such  prices 
only  as  we  may  fix  in  selling  lists  sent  to  you.  You  shall  not  sell, 
or  dispose  of,  any  cigarettes  at  lower  prices  than  those  so  fixed. 

1  Report  and  Proceedings  of  the  Joint  Committee  of  the  Senate  and  Assem- 
bly appointed  to  investigate  Trusts.  N.  Y.  Senate  Documents,  No.  40,  1897. 
pp.  87S-883. 


128  Industrial  Combinations  and  Trusts 

Third.  You  are  to  guarantee  all  sales  made  by  you.  An  extra 
compensation  of  2  per  cent,  will  be  allowed,  and  can  be  deducted 
by  you,  on  all  advances  made  upon  consignments  which  are  re- 
mitted to  us  within  ten  days  after  the  date  of  shipment  to  you. 

Fourth.  All  cigarettes  consigned  to  you  are  to  remain  our  prop- 
erty until  sold  by  you,  subject  only  to  your  lien  thereon  for  all 
advances  which  you  have  made  under  the  terms  of  this  agreement. 

Fifth.  The  cost  of  freight  from  our  factories  is  to  be  paid  by  us, 
or,  if  paid  by  you,  to  be  allowed  to  you  by  us  on  account. 

Sixth.  You  are  to  guarantee  us  against  loss  by  fire  or  other- 
wise of  any  cigarettes  consigned  to  you,  and  you  are  to  either  re- 
turn to  us  the  cigarettes  in  good  condition  or  the  price  of  the  same 
as  fixed  on  our  selling  lists  as  above  mentioned.  You  are  also  to 
pay  all  charges  and  other  expenses  of  every  nature  connected  with 
the  storing,  keeping  and  selling  of  cigarettes  which  we  may  consign 
to  you,  or  for  your  account,  after  the  delivery  thereof  by  us  to  the 
common  carrier,  including  all  State,  county  and  municipal  taxes 
and  license  fees. 

Seventh.  If  you  do  not  discriminate  against  our  cigarettes  in  fa- 
vor of  those  of  other  manufacture,  and  if  you  do  not  sell,  or  dispose 
of,  any  of  our  cigarettes  at  less  than  the  list  price,  and  if,  in  all  re- 
spects, you  comply  with  the  terms  of  this  agreement,  we  will  pay 
you  a  commission  of  two  and  one-half  (2-^)  per  cent,  on  the  amount 
realized  by  you  from  the  sale  of  the  cigarettes  which  we  may  con- 
sign to  you. 

Eighth.  If,  however,  you  handle  cigarettes  of  our  manufacture 
exclusively,  and  do  not  sell  or  distribute,  or  in  any  way  aid  in  the 
sale,  or  distribution  of,  cigarettes  of  other  manufacture,  and  if  you, 
in  all  respects,  fully  comply  with  the  terms  and  conditions  of  this 
agreement,  we  will  pay  you  an  additional  commission  of  seven  and 
one-half  (7-^)  per  cent,  on  the  amount  realized  by  you  from  the 
sale  of  the  cigarettes  which  we  may  consign  to  you. 

Ninth.  Settlements  and  payments  of  commissions  are  to  be  made 
as  follows: 

On  April  1,  1896,  or  as  soon  thereafter  as  practicable  on  all  cig- 
arettes consigned  by  us  to  you  from  the  date  of  your  signing  this 
contract  to  January  1,  1896,  which  have  been  sold  by  you  and 
settled  for  prior  to  April  1,  1806. 

On  July  1,  1896,  or  as  soon  thereafter  as  practicable,  on  all  cig- 
arettes consigned  by  us  to  you  during  the  three  months  ending 
April  1,  1896,  which  have  been  sold  by  you  and  settled  for  prior 


Factors'  Agreements  129 

to  July  1, 1896,  and  so  on,  from  quarter  to  quarter  thereafter,  in  the 
same  manner,  for  the  subsequent  consignments,  sales  and  payments. 

Tenth.  All  obligations  upon  our  part  to  pay  you  any  commission 
for  the  sale  of  the  cigarettes  which  we  may  consign  to  you  is,  and 
shall  be,  dependent  upon  your  strict  compliance  with  the  agreement 
hereinbefore  contained  that  you  will  not  sell  any  of  our  cigarettes 
for  a  less  price  than  that  fixed  in  our  selling  lists  sent  to  you.  If 
you  should  sell,  or  dispose  of  any  of  our  cigarettes  at  less  than  such 
price,  you  shall  forfeit  all  right  to  the  payment  of  any  commis- 
sions on  cigarettes  which  you  may  have  previously  sold,  and  on 
which  commissions  have  not  been  paid  you,  and  you  shall  at  once, 
on  demand,  pay  to  us  the  list  price  for  all  cigarettes  which  you  have 
sold,  and  deliver  to  us  all  of  our  cigarettes  then  in  your  possession 
which  may  have  been  previously  consigned  by  us  to  you. 

Eleventh.  Upon  your  acceptance  in  writing  of  the  terms  and 
conditions  of  this  agreement,  you  understand  and  agree  that  you 
will  handle  our  cigarettes  exclusively,  on  the  terms  and  conditions 
herein  specified,  and  in  the  event  that  you  hereafter  determine 
to  sell  cigarettes  of  other  manufacture,  you  are  to  notify  us,  in 
writing,  of  such  determination;  and  thereafter,  if  you  have  fully 
compiled  with  all  other  terms  of  this  agreement,  the  commissions 
to  be  paid  to  you  for  sale  of  our  cigarettes  shall  be  at  the  rate  of 
two  and  one-half  (2-^2)  per  cent. 

Twelfth.  If  you  shall  sell  or  distribute,  or  in  any  way,  directly  or 
indirectly,  aid  in  the  sale  or  distribution  of  any  other  cigarettes  than 
those  of  our  manufacture,  without  having  first  given  us  written 
notice  of  your  intention  so  to  do,  as  required  by  paragraph  eleventh, 
you  shall  not  be  entitled  to  claim  or  receive  any  commissions  not 
previously  paid  to  you  in  excess  of  two  and  one-half  (2-^2)  per  cent, 
on  any  past  or  future  sales  under  this  agreement;  and  the  right  and 
option  is  hereby  distinctly  reserved  to  us  to  determine  and  declare 
that  you  have  surrendered  all  right  to  be  paid  any  commission  over 
said  rate  of  two  and  one-half  per  cent.,  if  we  shall  be  satisfied  that 
you  have  in  any  way  aided  in  the  sale  or  distribution  of  cigarettes 
other  than  those  manufactured  by  us. 

Thirteenth.  We  reserve  the  right  of  determining,  at  all  times, 
as  to  the  number  of  cigarettes  and  the  brands  which  we  will  con- 
sign to  you  under  this  agreement,  we  to  determine  the  matter  be- 
fore or  after  receiving  requests  or  reports  from  you;  and  you  ex- 
pressly agree  that  you  will  promptly  make  reports,  or  account  of 
all  sales,  to  us,  whenever,  and  as  often  as,  we  may  call  for  the  same. 


130  Industrial  Combinations  and  Trusts 

Fourteenth.  The  right  is  reserved  to  us  at  any  time,  to  decline 
to  sell  you  any  more  cigarettes,  and  to  withdraw  the  cigarettes  al- 
ready consigned  to  you,  upon  repaying  to  you  all  your  legitimate 
advances  thereon,  and  the  right  is  reserved  to  you,  at  any  time, 
to  decline  to  act  further  for  us,  after  having  delivered  to  us  all 
cigarettes  then  in  your  hands,  and  paying  over  to  us  the  proceeds 
of  all  sales  of  our  cigarettes  at  list  price. 

Fifteenth.  Requests  for  consignments,  as  well  as  all  advances  and 
reports  of  sales  with  New  York  exchange,  must  be  paid  to  our  office 
in  New  York.    Commissions  will  also  be  settled  and  paid  from  there. 

Sixteenth.  No  employe  of  this  company  has  any  authority  what- 
ever to  change  or  modify  this  agreement,  or  any  circular,  letter, 
or  price  list  of  this  company. 

Your  agreement  in  writing  hereon  to  receive  our  cigarettes  on 
consignment  and  to  sell  and  account  for  the  same,  under  the  above 
conditions  when  executed  by  you,  will  constitute  a  binding  con- 
tract between  you  and  our  company. 
Very  truly  yours, 

The  American  Tobacco  Company. 
By 

agree  to  receive  cigarettes  on  consignment  from  the 

American  Tobacco  Company,  and  to  sell  the  same,  and  to  account 

to  said  company  therefor,  upon  the  terms  and  conditions  set  forth  in 

the  foregoing  written  proposition  to  us.    To  the  faithful  performance 

of  all  such  terms  and  conditions  we  hereby  agree  and  bind  ourselves. 

Dated i8qs-  /~.      1       \ 

(Sign  here) 

In  the  presence  of 

(Witness  sign  here) 

City  or  town 

State 

Exhibit  3 
national  wall  paper  company  * 
Memorandum   of   agreement  between. 


of (called  the  purchaser)  and  the  National  Wall 

Paper  Company  of  New  York,  N.  Y.  (called  the  company). 

1.  The  purchaser  agrees  to  select  and  order  from  and  out  of 
jobbing  lines  of  the  machine  made  goods  of  the  company  on  or  be- 
fore October  1, 1896,  wall  paper  to  the  aggregate  amount  of  $ , 

1  Op.  cit.  N.  Y.  Trust  Investigation,  1897,  pp.  804-806. 


Factors'  Agreements  131 

which hereby  request  the  company  to  manufacture  for 

prior  to  April  1,  1897,  goods  to  be  delivered  F.  O.  B.  at 

New  York,  or  at  the  respective  places  of  manufacture. 

2.  The  terms  of  this  sale  are  four  (4)  months  from  date  of  invoice, 
with  a  discount  at  the  rate  of  one  per  cent,  per  month  for  anticipated 
payments.  Goods  shipped  between  October  15th  and  March  1st  to 
date  from  March  1st,  and  orders  for  goods  not  shipped  before  March 
1,  1897,  may  be  cancelled  by  either  party  to  this  agreement. 

3.  The  purchaser  expressly  guarantee  and  agree  that  between 
September  1,  1896,  and  June  30,  1897,  will  not  purchase  or  acquire 
any  wall  paper  or  hangings  the  product  of  any  person  or  corpora- 
tion other  than  the  company,  and  that  will  give  additional  and  du- 
plicate orders  prior  to  July  1,  1897,  to  the  amount  of  $ , 

and  in  consideration  of  such  guarantee  and  upon  the  performance 
thereof  company  shall  credit  the  purchaser  with  the  discounts 
hereinafter  named  on  the  attached  schedule  on  all  purchases  from 
the  jobbing  lines  of  the  machine  made  goods  of  the  company  be- 
tween said  dates.1  Such  discounts  shall  be  figured  and  credited 
upon  the  basis  of  the  shipments  made  hereunder  and  the  discounts 
shall  be  calculated  upon  the  gross  prices  published  by  the  company 
in  its  price  list  for  the  patterns  selected  by  the  purchaser.  The 
purchaser  guarantee  l  as  a  condition  of  the  allowance  of  such  dis- 
counts to  refrain  from  making  such  use  thereof  among  the  trade  as 
to  interfere  with  the  uniformity  of  the  company's  price  and  terms, 
and  that  (the  purchaser)  will  at  all  times  during  this  contract  main- 
tain the  company's  road  prices. 

4.  The  company  agrees  to  extend  the  same  line  of  discounts  re- 
ferred to  above  to  such  goods  as  are  contained  in  the  exclusive 
lines  of  the  machine  made  goods  of  the  company,  on  the  express 
guarantee  that  such  goods  will  be  used  only  for  the  retail  depart- 
ment of  the  purchaser  in  the  city  of ,  and  will  not  be 

offered  at  wholesale  within  his  store  or  on  the  road. 

This  contract  shall  at  all  times  and  for  every  purpose  be  deemed 
to  have  been  made  and  executed  at  the  principal  office  of  the  com- 
pany, in  the  city  of  New  York,  and  it  shall  for  every  purpose  be 
construed  under  the  laws  of  the  State  of  New  York. 

Dated,  the  city  of  New  York 1896. 


National  Wall  Paper  Company, 

President, 
1  This  sentence  is  thus  in  original. — Ed. 


132  Industrial  Combinations  and  Trusts 

Exhibit  4 
american  sugar  refining  company  l 

New  York, ,  189 — . 

Dear  Sir. — We  enclose  herewith  invoice  of  even  date,  from  which 
you  are  entitled  to  our  usual  deductions  of  one  per  cent,  trade  dis- 
count on  one  hundred  barrel  lots,  and  one  per  cent,  for  cash  if  paid 
within  seven  days. 

Should  you  so  desire  we  shall  be  pleased,  upon  receipt  of  within 
written  request,  to  constitute  you  one  of  our  agents,  in  which  case 
sugar  will  be  consigned  to  you  for  sale  as  our  factor,  upon  the 
following  terms,  the  title  to  remain  in  us  subject  to  your  advances 
and  return  to  you  of  your  necessary  outlay: 

1.  You  are  to  advance  to  us  within  thirty  days  the  amount  of 
the  invoice,  which  will  be  made  up  at  our  daily  quotations,  less  one 
per  cent,  trade  discount  on  one  hundred  barrel  lots,  with  the  right 
to  deduct  one  per  cent,  additional  if  invoice  is  made  cash  in  seven 
days;  the  advance  to  be  without  recourse  to,  or  reclamation  upon 
us,  and  to  be  due  in  any  event. 

2.  The  sugar  when  sold  is  to  be  billed  in  your  name,  although  in 
fact  as  factor  for  us,  and  you  shall  without  reclamation  upon  us, 
at  your  own  cost,  pay  all  expenses  and  assume  all  risks  of  the  prop- 
erty and  of  payment  or  collection.  You  are  not  to  incur  any  ex- 
pense on  our  account. 

3.  None  of  the  sugar  shall  be  sold  or  disposed  of  by  you,  either 
directly  or  indirectly,  for  less  than  our  daily  quotations,  with  freight 
added  from  refining  point  to  point  of  sale  (as  per  equality  rate  book), 
nor  on  more  liberal  terms  as  to  credit  or  cash  discounts. 

So  long  as  the  foregoing  conditions  are  observed  by  you  we  will, 
upon  an  affidavit  to  that  effect,  pay  you  a  commission  of  three- 
sixteenths  of  a  cent  per  pound,  and  in  addition  thereto  you  shall 
retain  the  profit,  if  any,  over  the  advance  made  as  above  provided. 
In  case  of  any  failure  to  comply  with  either  of  the  above  conditions 
no  commissions  will  be  payable.  Settlements  will  be  made  for  each 
month's  commissions  at  the  expiration  of  three  months  thereafter. 
All  commissions  payable  for  the  period  preceding  the  three  months 
will  then  become  due.     Payments  will  only  be  made  as  above. 

1  Op.  cit.  N.  Y.  Trust  Investigation,  1897,  pp.  128-130. 


Factors'  Agreements  133 

This  agency  is  terminable  at  the  pleasure  of  either  party,  on 
written  notice. 

Yours  respectfully, 

THE   AMERICAN   SUGAR   REFINING   COMPANY. 


State  of ss. 

County  of 

being  duly  sworn,  says:  I,  as  factor  of  the  American 

Sugar  Refining  Company,  claim  from  the  company  a  conv 
mission  of  three-sixteenth1   of  a  cent   per   pound    (less   one   per 

cent,    where   trade   discount   has   been    allowed),    upon 

pounds  of  sugar  consigned  by  the  company  to  me  by  invoices,  the 

dates  of  which  cover  the  period  from to inclusive.    In 

compliance  with  the  conditions  upon  which  the  sugar  was  consigned 
to  me,  and  to  entitle  myself  to  the  commission,  I  do  hereby  make 
affidavit  that  none  of  the  sugar  mentioned  in  the  said  invoices  has 
been  or  will  be  sold  or  disposed  of  by  me,  either  directly  or  indi- 
rectly, for  less  than  the  daily  quotations  of  the  company,  with 
freight  added  from  refining  point  to  point  of  sale,  as  per  Equality 
Rate  Book,  nor  on  more  liberal  terms  as  to  credit  or  cash  discounts. 

Sworn  to  before  me 

this  day  of ,  in  the  year  of  189     . 

Exhibit  5 
united  states  rubber  company  2 
memorandum  of  agreement 
Between  the  United  States  Rubber  Company,  selling  agent,  here- 
inafter   called    The    Company,    and of 

hereinafter  called  The  Purchaser,  whereby  rubber  boots  and  shoes 
(except  tennis,  which  are  not  included  in  this  agreement)  sold  by 

The  Company  are  purchased  by  the  said subject  to  the 

following  terms,  discounts  and  conditions: 

Gross  Price  List  Season  1896-1897,  Ending  March  31,  1897, 
First  Discounts.  First  Quality  Brands:  American,  Boston-Bell, 
Candee,  Lycoming,  Meyer,  New  Brunswick,  United  States  Rubber 
Company,  Wales-Goodyear  and  Woonsocket,  at  15  and  8  per  cent, 
discount  from  above  stipulated  gross  price  list. 

1  Thus  in  original. — Ed. 

2  Op.  cit.  N.  Y.  Trust  Investigation,  1897,  pp.  646-652. 


134  Industrial  Combinations  and  Trusts 

Second  Quality  Brands:  Para,  Neptune,  Federal,  Keystone, 
Essex,  Jersey,  Connecticut  and  Rhode  Island,  15,  12  and  8  per  cent, 
discount  from  above  stipulated  gross  price  list. 

Third  Quality  Brand:  Columbia,  15,  12,  12  and  8  per  cent,  dis- 
count from  above  stipulated  gross  price  list. 

Cash  discount  of  8  per  cent,  per  annum  to  be  allowed  for  pre- 
payment. Interest,  6  per  cent,  per  annum,  will  be  charged  on 
overdue  accounts.  It  being  understood  that  the  agreement  by  the 
company  to  deliver  under  this  contract  is  limited  to  the  following 
brands: 

First  Quality 

Second  Quality 

Third  Quality 


Second — Terms. — Deliveries  of  all  goods  made  hereunder  to 
November  1  will  be  payable  December  15,  1896;  deliveries  in  No- 
vember payable  January  15,  1897;  deliveries  in  December  payable 
February  15,  1897;  deliveries  in  January  payable  March  15,  1897; 
deliveries  in  February  payable  April  15,  1897;  deliveries  in  March 
payable  May  15,  1897.  The  company  shall  have  the  right  to  call 
for  and  purchaser  agrees  to  give  upon  such  call,  cash  or  notes  accept- 
able to  the  company  for  the  net  value  of  the  goods  delivered  under 
this  contract  before  the  accounts  therefor  are  due. 

Third. — The  purchaser  agrees  to  be  governed  in  his  selling  price 
and  terms  by  the  instructions  of  the  company,  and  hereby  promises 
not  to  depart  from  or  evade,  by  any  direct  or  indirect  means,  all 
the  conditions  set  forth  in  Section  Fourth,  Selling  Price.  It  is  also 
understood  and  agreed  that  these  conditions,  for  sale  of  these  goods 
by  purchaser,  apply  to  all  on  hand  April  1, 1896,  as  well  as  to  present 
or  future  purchases  under  this  contract.  The  company,  on  its 
part,  agrees  that  if  any  change  is  made  in  the  selling  price  imme- 
diate notice  shall  be  given.  And  the  said  purchaser,  in  case  of  his 
failure  at  any  time  to  faithfully  observe  all  the  terms  and  conditions 
of  this  contract,  or  any  contract  made  with  the  company,  hereby 
consents  to  the  cancelling  by  the  company  of  all  its  unfilled  orders 
then  in  the  hands  of  the  company,  and  in  case  of  such  default  on 
the  part  of  said  purchaser  the  company  also  hereby  reserves  the 
right  to  cancel  all  said  purchaser's  orders  then  unfilled,  and  in  case 


Factors'  Agreements  135 

of  such  cancellation  the  accounts  of  said  purchaser  with  the  com- 
pany shall  thereupon  become  immediately  due  and  payable. 

Fourth — Selling  Price. — Until  further  notice  the  prices  and 
terms  fixed  by  the  company  for  the  sale  by  the  said  purchaser  of 
the  within  named  goods  (except  to  jobbers  as  per  Article  Seventh) 
are  as  follows: 

Discounts. — First  Quality  Brands,  15  per  cent.;  Second  Quality 
Brands,  15  and  12  per  cent.;  and  Third  Quality,  15,  12  and  12  per 
cent,  from  gross  price  list  of  1896-1897. 

Terms. — Bills  for  delivery  between  April   1   and  October  31, 

1896,  both  inclusive,  shall  be  dated  not  later  than  November  1, 
net  thirty  days,  1  per  cent  off  for  cash  in  ten  days. 

If  paid  prior  to  November  10,  8  per  cent  per  annum  to  Novem- 
ber 10,  and  the  above  mentioned  1  per  cent,  may  be  allowed. 

If  paid  between  November  10  and  December  1,  8  per  cent,  per 
annum  only  may  be  allowed. 

Bills  for  deliveries  between  November  1,  1896,  and  March  31, 

1897,  both  inclusive,  shall  be  payable,  net,  thirty  days  from  date 
of  shipment,  or  1  per  cent  off  for  cash  in  ten  days. 

Freight. — Actual  freight  may  be  allowed  by  said  purchaser  from 
any  point  to  any  other  point  of  railroad  or  steamboat  delivery  at 
his  own  cost  and  expense. 

Fifth — Liability  as  to  Orders. — The  company  will  not  be  obli- 
gated to  deliver  more  goods  than  contracted  for  in  this  agreement, 
notwithstanding  it  may  have  received  and  acknowledged  orders 
which  exceed  amount  of  cases  contracted  for  in  this  agreement. 
It  is  also  mutually  agreed,  in  case  of  labor  strikes,  fire  or  other 
casualty  that  may  curtail  or  stop  the  production  of  goods  con- 
tracted for,  that  the  company  shall  not  be  held  responsible  for  non- 
fulfillment of  orders  beyond  the  capacity  to  produce,  having  refer- 
ence to  the  whole  business,  and,  on  the  other  hand,  should  fire  or 
other  casualty  overtake  the  business  of  said  purchaser,  then  the 
company  will  cancel  his  orders,  if  he  so  desires.  In  contracting  for 
certain  number  of  cases  the  company  does  not  obligate  itself  to 
supply  all  in  the  particular  style  of  boots  and  shoes  which  the  orders 
detailed  may  call  for,  but  only  such  quantities  of  the  particular 
styles  embraced  in  the  orders  detailed  as  the  company  can  supply, 
having  reference  to  the  capacity  to  produce  and  its  obligation  to 
all  of  its  customers.  Two  weeks'  notice  of  any  changes  by  the 
purchaser  in  detailed  orders  is  required  to  cover  goods  in  process 
of  manufacture. 


136  Industrial  Combinations  and  Trusts 

Sixth — Guarantee. — In  consideration  of  the  faithful  perform- 
ance of  this  contract  on  the  part  of  the  purchaser,  the  company 
hereby  guarantees  that  in  case  it  shall,  prior  to  December  1st,  next, 
reduce  the  selling  price  to  retailers  below  the  price  herein  named, 
a  corresponding  reduction  shall  be  made  to  said  purchaser  on  all 
goods  shipped  or  delivered  to  him  prior  to  that  date.  But  in  case 
any  reduction  is  made  in  the  price  to  retailers  between  December 
1st,  1896,  and  March  31st,  1897,  both  inclusive,  then  the  said  pur- 
chaser shall  be  entitled  to  a  corresponding  reduction  only  on 
goods  actually  on  hand  in  his  own  store  at  the  time  of  such 
reduction,  a  statement  of  which  he  shall  furnish,  under  oath,  if 
desired.  It  being  understood  that  this  guarantee  shall  not  be 
affected  by  the  sale  of  out-of-style,  damaged  or  imperfect  goods, 
and  that  the  company  reserves  to  itself  entire  freedom  as  to 
the  classification  of  dealers  to  whom  it  may  sell  its  goods  direct  as 
jobbers. 

Seventh — Exchange  of  Goods. — Nothing  in  this  agreement  shall 
prevent  customers  of  the  said  company  from  exchanging  with  each 
other  or  purchasing  from  each  other,  at  prices  mutually  agreed 
upon,  and  with  written  approval  of  the  said  company,  its  goods 
may  be  exchanged  with,  or  sold  to  other  jobbers,  provided  such 
goods  bought,  sold  or  exchanged,  shall  not  be  resold  at  any 
better  discounts  or  terms  than  are  stipulated  in  this  agree- 
ment. 

Eighth. — Damaged  or  out-of-style  goods  which  cannot  be  sold 
at  full  discounts,  may  be  disposed  of  at  reduced  prices,  with  the 
consent  of  the  company,  upon  sending  to  the  company  a  list  of 
such  unsalable  goods.  To  avoid  any  confusion  with  discounts  on 
standard  styles,  all  damaged  and  out-of-style  goods  must  be  sold 
at  net  prices.  The  company  may  sell  damaged  or  out-of-style 
goods  at  reduced  net  prices. 

Ninth — Orders. — It  is  understood  and  agreed  that  all  the  fore- 
going conditions  are  to  apply  to  all  goods  purchased  by  the  said 

of  the  company,  for  the  season  ending  March  31st,  1897, 

excepting  that  the  discounts  named  in  Section  1  apply  only  to 

cases,  the  detailed  order  of  which  the  said  purchaser 

promises  to  give  immediately  upon  request.  In  case  the  said  pur- 
chaser shall  fail  to  send  in  detailed  orders  for  the  goods  herein  con- 
tracted for,  within  fifteen  days  after  receipt  of  such  request,  in 
writing,  then  the  company  shall  be  released  from  the  delivery  of 
any  and  all  goods  not  so  ordered  in  detail. 


Factors'  Agreements  137 

All  orders  unfilled  March  31st,  1897,  will  be  understood  as  can- 
celled at  that  date.  The  company  cannot  undertake  to  mark  or 
ship  goods  to  the  purchaser's  customers. 

Tenth — N.  B. — It  is  hereby  understood  and  agreed  to  that  this 
contract  is  absolutely  between  the  seller  and  the  purchaser,  and 
annuls,  cancels  and  obliterates  any  and  all  contracts,  agreements, 
understandings  or  practices  heretofore  in  vogue,  under  which  the 
purchaser  has  heretofore  bought  goods  of  the  brands  herein  con- 
tracted for,  and  it  is  distinctly  understood  that  no  other  contract, 
agreement,  understanding  or  previous  practice  prevails  in  respect 
to  the  subject  matter  of  this  contract,  except  those  herein  specif- 
ically provided. 

Dated  at this  first  day  of  April,  1896. 


(This  contract  is  not  binding  until 
approved  by  Director  of  Sales.) 
Approved : 

Director  of  Sales. 


SUPPLEMENTARY   AGREEMENT. 

The  United  States  Rubber  Company,  selling  agent,  hereinafter 
called  The  Company,  in  consideration  of  a  certain  agreement  be- 
tween it  and ,  hereinafter  called  The   Purchaser, 

dated  at April    1st,    1896,   hereby  covenants  and 

agrees  with  said  purchaser,  that  if  said  purchaser  shall  have  well 
and  faithfully  kept  and  performed  all  the  undertakings  on  his 
part,  to  be  performed  in  said  agreement  contained,  and  shall  not 
have  directly  or  indirectly  violated  the  same  or  any  provision 
thereof  while  it  continues  in  force,  The  Company  will,  as  soon  after 
the  first  day  of  April,  1897,  as  The  Company  is  satisfied  that  said 
agreement  has  been  faithfully  kept  and  performed  by  said  Pur- 
chaser, and  account  settled  in  full,  pay  or  credit  him  with  7  per 
cent,  on  the  net  amount  of  his  purchases  under  said  agreement. 

This  7  per  cent,  shall  form  no  part  of  settlement  between  The 
Company  and  said  Purchaser,  but  it  is  to  be  regarded  purely  in  the 
light  of  a  rebate,  and  payable  only  subject  to  the  conditions  herein 
stated. 


138  Industrial  Combinations  and  Trusts 

Provided,  however,  that  if,  in  the  opinion  of  the  Company, 
which  is  to  be  final  and  conclusive,  said  agreement  shall  have  been 
in  any  material  respect  violated  by  said  purchaser,  he  shall  not  be 
entitled  to  said  rebate  of  7  per  cent.,  but  shall  pay  for  all  goods 
purchased  by  him  under  said  agreement,  upon  the  terms  and  at 
the  discounts  therein  mentioned,  without  further  discount  or  re- 
bate. 

It  is  mutually  understood  that  any  freight  or  cash  discount 
made  by  said  Purchaser,  other  than  as  stipulated  in  said  agreement, 
shall  be  deemed  a  violation  of  its  terms  as  completely  and  to  the 
same  extent  as  a  concession  in  terms  or  discount. 

And  it  is  also  nutually  l  understood  that  said  Purchaser  is  to 
be  held  responsible  for  any  violation  of  said  agreement  by  his  em- 
ployes. 

Dated ,  this  first  day  of  April,  1896. 


(This  contract  is  not  binding  until 
approved  by  Director  of  Sales.) 
Approved : 

Director  of  Sales. 

Exhibit  6 

standard  sanitary  manufacturing  company  2 

Note. — This  contract  must  be  executed  by  the  Purchaser  in 
order  to  purchase  Licensed  Sanitary  Enameled  Iron  Ware. 

JOBBERS  LICENSE  AGREEMENT 

This  Agreement,  Made  this day  of 

190.  . ,  between  the a    corporation 

(hereinafter  called  the  Company)  and 

State    of (hereinafter    called     the 

Purchaser). 

1  Thus  in  original. — Ed. 

2  United  States  of  America  v.  Standard  Sanitary  Manufacturing  Company  and 
ethers.  In  the  Circuit  Court  of  the  United  States  for  the  District  of  Maryland. 
Pet.  Exhibit  No.  11,  Record,  Vol.  11,  pp.  32-39. 


Factors'  Agreements  139 

Witnesseth:  Whereas  the  Company  is  licensed  under  certain 
United  States  Letters  Patent  relating  to  Sanitary  Enameled  Ware 
and  processes  and  apparatus  used  in  the  manufacture  thereof, 
which  said  Letters  Patent  are  enumerated  as  follows: 


SCHEDULE   OF   PATENTS 

Pat.  No.  Date  Inventor  Title 

633,941  Sept.  26th,  1899  James  Arrott  Dredger  for  Pulveru- 
lent Material. 

949,625  Feb.  15th,  1910     E.  Ditheridge        Pneumatic  Sieve. 

939,918  Nov.  9th,  1909      William  Lindsay   Enameling    Powder 

Distributor. 

And  Whereas,  the  Purchaser  desires  to  purchase  from  the  Com- 
pany Sanitary  Enameled  Iron  Ware  embodying  or  made  in  ac- 
cordance with  said  inventions,  and  to  obtain  licenses  to  sell  such 
ware  to  others,  and  the  Company  is  willing  to  sell  Sanitary  Enam- 
eled Iron  Ware  to  the  Purchaser,  and  to  license  it  for  resale  on  the 
following  terms  and  conditions: 

Now,  Therefore: 

1.  The  Company  agrees  to  sell  and  the  Purchaser  agrees  to  buy 
for  a  period  of  time  beginning  June  1st,  1910,  and  ending  December 
31st,  1910, Sanitary  Enameled  Iron  Ware  at  the  follow- 
ing discounts  from  the  prices  given  in  the  various  Schedules: 

(Insert  label) 

DISCOUNTS  AND  TERMS 

Articles 

Discounts  from  Resale  Prices 
Established  by  the  Licensor. 
(To  be  allowed   on  invoices 
by  the  Manufacturer) 

Schedule  No.  1-5  year  Guaranteed  Baths,  Foot,  Pool,  Sitz 

and  Child's  and  Receptors 7~3^% 

Schedule  No.  2-2  year  Guaranteed  Baths 5% 

Schedule  No.  3-All  other  Grades  of  Baths 5% 

Schedule  No.  4-Small  Wares,  Drinking  Fountains,  Lava- 
tories, etc 7-/^% 

Exceptions:  Lavatories,  similar  to  Plates 
(Standard)  P-558,  559,  561  and  562 5% 


140  Industrial  Combinations  and  Trusts 

Articles 

Discounts  from  Resale  Prices 
Established  by  the  Licensor. 
(To  be   allowed   on    invoices 
by  the  Manufacturer) 

Schedule  No.  4-3^-Roll  Rim  Sinks  and  Combinations, 
Slop  Sinks,  Sink  Backs  and  Ends,  Drain 
Boards,  Factory  and  Wash  Sinks,  Sink  and 
Tray  Combinations,  Laundry  Trays,  Closet 
Bowls  and  Urinals 5% 

Schedule  No.  5-Flat  Rim  Sinks  and  Combinations,  Square 
and  Round  Corner  Kitchen,  Half  Circle, 
Corner,  Slop  Sinks,  Slop  Hoppers,  Wash 
Bowls,  Trap  Standards  and  Grease  Traps  5% 

Schedule  No.  6-Tanks,  Closet  and  Urinal,  High  and  Low 

Pattern 5% 

Terms:  Net  60  days  or  2%  for  cash  10th  of  month  following 
shipment. 

DELIVERIES 

2.  Goods  will  be  sold  to  the  Purchaser,  F.  0.  B.  Cars  where 
factory  is  located,  at  the  prices  given  in  the  Resale  Sheets  for  the 
various  zones  (subject  to  the  Discounts  and  Rebates  named)  with 
full  freight  allowed  on  shipments  of  200  pounds  and  over  (subject 
to  the  Freight  Tariff  Regulations  herein  provided  for)  to  the  list 
of  cities  named  in  the  various  zones.  To  other  points  than  those 
named,  delivery  can  be  made  only  on  the  basis  of  the  Purchaser 
being  charged  and  paying  freight  from  the  nearest  city  named, 
based  on  the  weights  shown  in  the  sheets  and  at  the  rates  shown 
in  the  Equalizing  Tariff  Schedule. 

Note:  Goods  may  be  shipped  in  mixed  car  loads  to  all  points, 
on,  or  east  of  the  western  bank  of  the  Mississippi  River,  Minneap- 
olis to  New  Orleans  and  to  the  Atlantic  Seaboard,  inclusive.  To 
points  west  of  the  western  bank  of  the  Mississippi  River,  goods 
may  only  be  shipped  in  mixed  car  loads  to  points  so  provided  for 
in  the  Railroad  Tariffs  and  Classifications. 

Goods  shall  be  resold  by  the  Purchaser  at  prices  established  and 
prevailing  in  the  various  zones  into  which  the  goods  are  shipped 
regardless  of  the  point  of  purchase. 

Purchaser  will  be  allowed  car  load  prices  in  any  quantity  on 
shipments  to  the  manufacturing  and  jobbing  points  specified.  On 
shipments  to  jobbing  points  other  than  manufacturing  points,  car 
load  or  less  car  load  prices  will  apply  according  to  quantity. 


Factors'  Agreements  141 


GENERAL  CONDITIONS 

3.  Prices  or  other  regulations  are  effective  the  morning  of  the 
date  appearing  on  the  sheet. 

4.  The  ware  covered  by  the  Price  Sheets  shall  be  invoiced  by 
the  individual  items,  and  it  is  not  permissible  to  bill  collectively 
several  articles  in  a  "Lump  Sum." 

5.  The  various  conditions  respecting  "Guarantees"  under  which 
the  ware  is  purchased  by  the  jobber,  shall  not  be  varied  in  the  re- 
sale to  the  plumber. 

6.  The  restrictions  herein  contained  as  to  the  prices  at  which 
Sanitary  Enameled  Iron  Ware  is  to  be  purchased  and  sold,  shall 
not  apply  to  Sanitary  Enameled  Iron  Ware  sold  and  exported  to 
Foreign  Countries.  Such  sales  must  be  proved  bona  fide  to  the 
Licensor. 

REBATES 

7.  If  all  the  conditions  of  this  agreement  have  been  complied 
with  and  you  have  confined  your  purchases  to  the  Licensed  Manu- 
facturers, we  will  pay  you  rebates  on  such  purchases  as  you  have 
made  from  us  as  follows: 

Schedule  No.  1-5  year  Guaranteed  Baths,  Foot,  Pool,  Sitz 

and  Child's  and  Receptors 5% 

Schedule  No.  2-2  year  Guaranteed  Baths 5% 

Schedule  No.  3-All  other  Grades  of  Baths 5% 

Schedule  No.  4-Small  Wares,  Drinking  Fountains,  Lava- 
tories, etc 5% 

Exceptions:  Lavatories,  similar  to  Plates 
(Standard)  P-558,  559,  561  and  562 5% 

Schedule  No.  4-^-Roll  Rim  Sinks  and  Combinations,  Slop 
Sinks,  Sink  Backs  and  Ends,  Drain  Boards, 
Factory  and  Wash  Sinks,  Sink  and  Tray 
Combinations,  Laundry  Trays,  Closet 
Bowls  and  Urinals 5% 

Schedule  No.  5-Flat  Rim  Sinks  and  Combinations,  Square 
and  Round  Cornered,  Kitchen,  Half  Circle, 
Corner,  Slop  Sinks,  Slop  Hoppers,  Wash 
Bowls,  Trap  Standards  and  Grease  Traps.  5% 

Schedule  No.  6-Tanks,  Closet  and  Urinal,  High  and  Low 

Pattern 5% 


142  Industrial  Combinations  and  Trusts 

8.  If  your  purchases  of  material,  less  returned  goods,  covered 
by  the  various  Schedules  from  the  following  Manufacturers  li- 
censed under  the  patents  enumerated  hereinbefore: 

Barnes  Manufacturing  Co.,  The Mansfield,  0. 

Cahill  Iron  Works,  The Chattanooga,  Tenn. 

Colwell  Lead  Co New  York- 
Day- Ward  Co.,  The Warren,  O. 

Humphreys  Mfg.  Co.,  The Mansfield,  O. 

Kerner  Manufacturing  Co Pittsburg,  Pa. 

Mott  Iron  Works,  The  J.  L New  York  City 

McVay  &  Walker Braddock,  Pa. 

McCrum-Howell  Co.,  The New  York  City 

National  Sanitary  Mfg.  Co.,  The Salem,  O. 

Standard  Sanitary  Mfg.  Co Pittsburgh,   Pa. 

Union  Sanitary  Mfg.  Co Noblesville,  Ind. 

United  States  Sanitary  Mfg.  Co Pittsburgh,  Pa. 

Wolff  Mfg.  Co.,  L Chicago,  111. 

Weiskittel  &  Son  Co.,  A Baltimore,  Md. 

Wheeling  Enameled  Iron  Co Wheeling,  W.  Va. 

have  aggregated  sums  as  follows  and  if  all  the  conditions  of  this 
agreement  have  been  complied  with,  the  Company  will  pay  the 
Purchaser  rebates  on  such  purchases  as  they  have  made  from  the 
Company  during  the  period  ending  December  31st,  1910,  as  fol- 
lows, 

$10,000 2-3^% 

$iS,ooo 3       % 

$20,000 3~M% 

$25,000 4      % 

$3°>000 5      % 

Rebates  are  payable  only  at  the  expiration  of  the  period  ending 
December  31st,  19 10,  and  after  claims  have  been  approved  by 
E.  L.  Wayman,  Licensor,  Arrott  Building,  Pittsburgh,  Pa. 

Written  application  for  rebate  must  be  made  at  the  close  of  the 
rebate  period  to  E.  L.  Wayman,  Licensor,  upon  standard  forms, 
which  may  be  obtained  from  him  for  that  purpose.  Unless  claim 
for  rebate  is  presented  within  30  days  after  the  expiration  of  this 
agreement,  the  right  to  refuse  to  allow  such  rebate  is  reserved  by 
the  Licensor  named  above. 

If  at  the  expiration  of  this  contract,  a  similar  contract  is  made 
between  the  parties  hereto  and  the  purchases  under  each  contract 


Factors'  Agreements  143 

are  sufficiently  large  so  that  the  aggregate  of  the  purchases  under 
both  contracts  are  double  the  amounts  named  above,  then  the 
Compaany  1  will  pay  the  percentage  rebate  named  above  on  the 
entire  amount  of  such  purchases  under  both  contracts,  but  it  shall 
not  be  permissible  to  aggregate  purchases  made  under  more  than 
two  successive  contracts  to  obtain  any  greater  rebate  than  may  be 
payable  under  the  last  of  such  two  successive  contracts. 

9.  The  Purchaser  understands  that  the  re-sale  prices  of  all  ware 
manufactured  under  the  Letters  Patent  enumerated  herein,  as 
established  from  time  to  time  by  the  Company,  must  be  maintained 
by  all  Licensed  Sanitary  Enameled  Iron  Ware  Manufacturers  and 
by  all  Jobbers  and  Dealers  and  that  sales  by  one  Jobber  to  another 
cannot  be  made  at  any  better  prices  than  established  in  the  sheets. 
The  Purchaser  therefore  agrees  that  he  will  observe  and  strictly 
maintain  on  all  types  and  classes  of  ware  the  selling  prices  as  they 
are  set  forth  in  the  schedules,  and  will  observe  and  strictly  adhere 
to  the  rules  and  regulations  as  embodied  in  the  Price  Sheets  and 
furnished  as  a  part  of  this  agreement,  or  as  they  may  be  embodied 
in  the  Price  Sheets  issued  hereafter  and  substituted  by  or  under  the 
authority  of  the  Licensor  (E.  L.  Wayman)  in  place  of  those  fur- 
nished herewith.  Articles  may  be  added  to  or  removed  from  the 
schedules  at  any  time;  but  in  the  event  of  such  removal,  the  pur- 
chases to  date  of  such  removal  will  be  considered  as  part  of  the 
amount  on  which  rebate  is  estimated. 

10  The  Purchaser  also  agrees  during  the  life  of  this  company 
not  to  purchase,  sell,  advertise,  solicit  orders  for,  or  in  any  way 
handle  or  deal  in  Sanitary  Enameled  Iron  Ware  of  any  manufac- 
turer not  licensed  under  the  Letters  Patent  enumerated  herein, 
except  with  the  express  written  permission  of  the  Licensor.  Breach 
of  any  of  the  provisions  of  this  agreement,  or  any  failure  to  maintain 
and  observe  prices,  rules  or  regulations  shall  give  the  Company, 
or  E.  L.  Wayman,  owner  of  the  Patents  hereinbefore  enumerated, 
an  option  immediately  to  cancel  this  contract,  all  unfilled  orders 
and  to  withhold  all  rebates;  and  the  Purchaser  is  hereby  expressly 
put  on  notice  that  in  case  of  any  such  failure,  he  can  not  there- 
after obtain  Sanitary  Enameled  Iron  Ware  manufactured  under 
the  Letters  Patent  above  enumerated  from  any  of  the  Licensed 
Manufacturers. 

11.  As  an  added  consideration  for  this  agreement  whereby  the 
Purchaser  is  to  be  sold  goods  manufactured  under  the  patents 
1  Thus  in  original. — Ed. 


144  Industrial  Combinations  and  Trusts 

hereinbefore  named,  the  Purchaser  hereby  agrees  that  as  to  all 
goods,  wares  and  merchandise,  which  are  manufactured  under  and 
in  accordance  with  the  patents  hereinbefore  named,  the  Purchaser 
will  only  resell  such  goods  now  on  hand,  or  already  purchased  by 
him,  irrespective  of  by  whom  such  goods  have  been  manufac- 
tured, in  accordance  with  the  rules,  terms,  conditions,  prices  and 
regulations  of  sale  which  are  herein  established,  or  which  may 
hereafter  be  established  in  accordance  with  the  terms  of  this  agree- 
ment, as  specially  set  forth  in  paragraph  9  hereof. 

12.  This  agreement  does  not  become  binding  on  the  Company 
until  accepted  in  writing  at  the  foot  hereof  by  the  Sales  Manager  or 
his  duly  authorized  representative  located  in  the  main  sales  office 
of  the  Company. 


Accepted  this 

day  of 19 

(Purchaser) 

(Company) 

By 

This  statement  must  be  signed  by  both  Manufacturer  and 
Jobber,  detached  and  filed  promptly  with  E.  L. 
Wayman,  Arrott  Building,  Pittsburg,  Pa. 

Dated 191. . 

E.  L.  Wayman,  Licensor, 
Arrott  Building, 
Pittsburg,  Pa. 
This  is  to  certify  that  a  "Jobber's  License  Agreement"  Purchase 
Contract  has  been  executed  between 

(Manufacturer) 

and (Jobber) 

(City  and  State) 

at  the  following  Discounts  (subject  to  the  established  rebates) 
from  the  Resale  Prices  established  by  you  or  that  may  be  established 
by  you  during  the  period  ending  December  31st,  1910. 
(Here  follows  schedule  of  articles) 


Factors'  Agreements  145 


Exhibit  7 

excerpts  showing  the  operation  of  the  factors'  agreement 
of  the  american  tobacco  company  1 

LIST  OF  CONSIGNEES  WHOSE  AGREEMENTS  WERE  REVOKED 
FOR  HANDLING  OPPOSITION  GOODS,  AS  SHOWN  BY  THEIR  OWN 
TESTIMONY  AND  THAT  OF  MR.  BROWN. 

Revoked  before  March  1,  1893. 

Sussman  Brothers,  New  York  city,  December  21,  1893,  cause, 
pushing  Admiral  cigarettes, — "A  general  inimical  feeling  to  the 
company  and  abuse  of  me." — Browne,  p.  1370. 

John  R.  Miller  &  Son,  Newark,  N.  J.  February  4,  1893.  Under- 
stood to  have  been  given  the  sole  agency  for  the  National  Cigarette 
and  Tobacco  Company's  goods  in  Newark  and  vicinity.  Browne, 
p.  135 1 ;  Dunstatter,  pp.  11 25-1 126;  total  2. 

FOR  HANDLING  ADMIRAL  CIGARETTES  AFTER  MARCH 

1,   1895. 

Monroe  Cigar  Co.,  Rochester,  N.  Y.,  May  3,  1893.  They  were 
pushing  the  Admirals  and  seemed  to  be  closely  in  touch  with  the 
National  Company.  Their  account  was  also  in  a  very  unsatisfac- 
tory condition.  Browne,  p.  1352.  They  had  the  sole  agency  for 
the  Admiral  Cigarettes  in  Rochester  and  thirty  miles  around. 
Tuke,  274. 

John  McLaughlin,  Lancaster,  Pa.,  May  23,  1893.  Was  cut  off 
for  "active  pushing  of  the  Admiral  Cigarette  and  the  accompany- 
ing advertisement  discriminating  against  our  goods."  "Was 
giving  them  the  preference  over  ours."    Browne,  p.  1354. 

Alexander  Wilson  &  Co.,  Pittsburg,  Pa.,  May  26,  1893.  They 
"were  the  most  active  distributors  of  Admirals  that  they  (Na- 
tional) had  in  Pittsburg."  The  agreement  would  have  been  re- 
voked even  if  they  had  not  accepted  the  agency  for  the  Admirals. 
Browne,  p.  1377-8.    See  also  report  of  Charles  E.  Brown,  p.  1647. 

Love,  Sunshine  Co.,  Johnstown,  Pa.,  May  26,  1893.  They  were 
the  agents  of  the  National  Company  and  put  their  whole  force 
into  selling  the  National  Company's  goods.    Browne,  p.  1343. 

Martin  &  Co.,  Pittsburg,  Pa.,  May  26,  1893.  They  were  "ex- 
traordinarily active"  in  pushing  Admirals.  They  were  trying  to 
'Op.  cit.  N.  Y.  Trust  Investigation,  1897,  pp.  913-922. 


146  Industrial  Combinations  and  Trusts 

displace  the  A.  T.  Co.'s  goods  and  boasted  what  they  would  do 
with  them.    Browne,  p.  1349.    See  also  report  of  Charles  E.  Brown, 

P-  1643- 

M.  F.  H.  Woerner,  Manayunk,  Pa.,  May  26th,  1893.  Was 
"trying  to  push  and  urge  the  sale  of  Admirals."  Brown,  pp.  1334, 
1381. 

John  Schwartz,  Hazleton,  Pa.,  May  26,  1893.  Took  in  Admiral 
Cigarettes.  "All  orders  for  or  taken  by  the  National  Cigarette 
and  Tobacco  Company  men  and  by  his  own  men,  with  his  own 
wagon,  were  filled  by  him."    Brown,  p.  L  '  638. 

John  Rauch,  Indianapolis,  Ind.,  June  14,  1893.  Was  cut  off 
"for  the  interest  he  took  in  the  Admiral  Cigarette,  the  activity  in 
their  distribution  and  so  on."  He  was  also  very  friendly  with  the 
officers  of  the  National  Company,  who  were  then  making  a  "great 
big  display"  with  their  "No  Trust"  advertisements  in  Indian- 
apolis.   Brown,  p.  1363. 

August  Rickebush  Tobacco  Company,  Milwaukee,  Wis.,  July  6, 
1893.  They  were  agents  for  the  National  Cigarette  and  Tobacco 
Co.,  and  are  regarded  as  part  of  that  company  themselves.  They 
also  cut  prices  on  tobacco  and  advertised  their  own  goods  as  "not 
made  by  a  Trust."    Brown,  p.  1351. 


FOR  HANDLING  "ROYAL  SWEETS",  A  BRAND  OF  CIGARETTES 
CLAIMED  TO  BE  AN  IMITATION  OF  "SWEET  CAPORALS". 

C.  A.  Whelan  &  Co.,  Syracuse,  N.  Y.,  May  2,  1892.  George 
Whelan,  the  company  of  that  concern,  became  an  employee  of  the 
National  Cigarette  and  Tobacco  Company  at  a  salary  of  four 
thousand  dollars  a  year,  and  they  immediately  began  pushing  the 
"Royal  Sweet  Cigarettes,"  which  we  considered  an  imitation  of 
ours.    Brown,  p.  1542. 

Boston  Cigar  and  Tobacco  Co.,  Boston,  Mass.,  May  4,  1895. 
"A.  R.  Mitchell  &  Co.  had  the  agency  for  the  Royal  Sweet  Ciga- 
rettes, and  the  Boston  Cigar  and  Tobacco  Co.  were  actively,  as  the 
sub-agents  of  these,  pushing  them."  Brown,  p.  13 13.  See  also 
report  of  R.  R.  Lawrence,  p.  1540. 

Brewster,  Crittenden  &  Co.,  Rochester,  N.  Y.,  May  9,  1895. 
Were  cut  off  for  handling  "Royal  Sweets  Imitation  Cigarettes." 

S.  S.  Sleeper  &  Co.,  Boston,  Mass.,  July  12,  1895.    A  member  of 

1  Thus  in  original. — Ed. 


Factors'  Agreements  147 

this  firm  became  president  of  the  Executive  Association  of  the 
Wholesale  Grocers  of  New  England,  who  were  fighting  the  A.  T. 
Co.,  and  pushing  the  Royal  Sweet  cigarettes.  The  agency  had 
entered  into  an  agreement  with  the  National  Cigarette  and  To- 
bacco Company  to  give  its  goods  the  preference,  for  which  it  was  to 
receive  the  sum  of  about  $35,000.  S.  S.  Sleeper  &  Co.  had  carried 
out  the  agreement  of  the  association  and  had  their  windows  full  of 
the  imitation  cigarettes.     Brown,  pp.  1544,  1546. 

FOR  HANDLING  OTHER  CIGARETTES  THAN  THOSE  MADE  BY 
THE  NATIONAL  CIGARETTE  AND  TOBACCO  COMPANY. 

Boston  Cigar  and  Tobacco  Co.,  Boston,  Mass.,  June  15,  1893. 

West,  Stone  &  Co.,  Springfield,  Mass.,  July  15,  1893. 

The  Boston  Cigar  and  Tobacco  Co.  was  an  offshoot  of  A.  R. 
Mitchell  &  Co.,  who  had  taken  the  agency  for  New  England  for 
the  sale  of  the  "Beauty  Bright"  cigarettes,  and  A.  R.  Mitchell  & 
Co.,  and  the  Boston  Cigar  and  Tobacco  Co.  were  actively  pushing 
and  urging  the  sale  of  "Beauty  Brights"  in  preference  to  the  A.  T. 
Co.'s  goods.    Brown,  pp.  1321,  1322  and  1376. 

West,  Stone  &  Co.,  A.  R.  Mitchell  &  Co.  and  the  Boston  Cigar 
and  Tobacco  Co.  were  just  the  same  as  one  concern  with  branches. 
All  of  them  were  distributing  "Beauty  Brights"  to  the  detriment 
of  the  A.  T.  Co.'s  brands.    Brown,  p.  1376. 

Charles  McArthur,  buying  agent  for  West,  Stone  &  Co.,  1893, 
says  that  "West,  Stone  &  Co.  made  an  agreement  with  Mr.  Rich- 
ards of  A.  R.  Mitchell  &  Co.,  under  which  they,  West,  Stone  &  Co., 
were  to  have  the  sole  and  exclusive  agency  of  the  goods  (Beauty 
Brights)  for  the  city  of  Springfield,  and  in  consideration  they  were 
to  push  the  goods  to  the  exclusion  of  all  others  and  receive  an  extra 
bonus  of  5  per  cent."  He  further  says  that  he  was  one  of  the  sales- 
men and  knows  that  they  did  push  Beauty  Bright  goods  to  the  ex- 
clusion of  all  other  paper  cigarettes  for  a  time.  That  he  did  it  him- 
self (pp.  1777-1779). 

Total,  2. 

Total  revocations  for  handling  other  goods,  36. 

LIST  OF  CONSIGNEES  OR  DEALERS  WHO  TESTIFIED  THAT  THEY 
WERE  NOT  ALLOWED  TO  SELL  OPPOSITION  GOODS  UNDER  THE 
CONSIGNMENT  AGREEMENT,  BUT  WERE  NOT  CUT  OFF. 

Hobart  J.  Park,  of  Park  and  Tilford,  says  that  this  firm  at  one 
time  received  upon  consignment  25,000  cigarettes  from  the  National 


148  Industrial  Combinations  and  Trusts 

Cigarette  and  Tobacco  Company.  That  after  they  began  to  sell  the 
same,  Mr.  Butler,  secretary  of  the  A.  T.  Co.  called  his  attention 
to  the  sixth  clause  of  the  consignment  agreement,  and  said  that 
"if  we  continue  to  sell  the  National  cigarettes  it  would  allow  them 
to  give  us  the  discount  or  not  as  they  saw  fit  on  the  American  To- 
bacco Company  cigarettes;  it  was  a  violation  of  the  contract,  and 
we  looked  at  the  contract  and  we  sent  the  goods  back"  (p.  45). 
He  further  said  that  Mr.  Butler  did  not  say  anything  about  refus- 
ing to  sell  or  consign  any  other  goods  if  Park  &  Tilford  kept  the  Na- 
tional Company's  goods  (p.  46). 

Joseph  Park  says  that  Mr.  Butler  gave  him  to  understand  that 
he  was  violating  the  contract  and  that  the  A.  T.  Co.  could  not  con- 
tinue their  discount  if  he  handled  other  than  the  A.  T.  Co.'s  ciga- 
rettes or  any  in  competition  with  them.  That  he  violated  their 
agreement   (p.   196). 


LIST  OF  THOSE  CONSIGNEES  WHOSE  AGREEMENTS  WERE  RE- 
VOKED FOR  CUTTING  PRICES,  AS  SHOWN  BY  THEIR  TESTI- 
MONY AND  THAT  OF  MR.  BROWN. 

Revoked   before   March    1,    1893. 
Gilderhouse,  Wilfing  &  Co.,  St.  Louis,  Mo.,  June  6,  1892.  Brown, 

P-  1336- 

Sussman  Brothers,  New  York  city,  June  n,  1892.    Brown,  p. 
1369. 

A.  F.  Cunningham  &  Co.,  Philadelphia,  Pa.,  November  21,  1892, 
Brown,  p.  1329;  p.  882. 

Americus  Grocery  Co.,  Americus,  Ga.,  December  3,  1892.  Brown, 
p.  297. 

Total  4. 

Revoked  after  March  1,  1893. 

Henry   Berbert,  Brooklyn,  N.  Y.,  May  26,  1893  and  June  19, 

1893.  Brown,  p.  1315;  Burbert,1  pp.  358-359. 

S.  Benjamin,  Brooklyn,  N.  Y.,  June  16,  1893.  Brown,  p.  1316. 
A.  &  W.  Diamond,  New  York  city,  June  19,  1893  and  June  18, 

1894.  Brown,  p.  1334;  Arnold  Diamond,  pp.  435,  436,  438,  439. 
M.  H.  Rieders,  New  York  city,  June  19,  1893  and  June  18,  1894. 

Brown,  p.  1364;  Rieders,  pp.  383-385,  387,  388. 

1  Thus  in  original. — Ed. 


Factors'  Agreements  149 

B.  Berschatsky,  Brooklyn,  N.  Y.,  June  19,  1893  and  June  18, 
1894.    Brown,  p.  1312;  Berschatsky,  pp.  444,  445,  448. 

I.  Jackson,  New  York  city,  June  20,  1893  and  July  20,  1893. 
Brown,  p.  1339. 

Exhibit  8 
dr.  miles  medical  company  v.  john  d.  park  &  sons 

COMPANY ! 

The  complainant  Dr.  Miles  Medical  Company,  an  Indiana 
corporation,  is  engaged  in  the  manufacture  and  sale  of  proprietary 
medicines,  prepared  by  means  of  secret  methods  and  formulas  and 
identified  by  distinctive  packages,  labels  and  trade-marks.  It  has 
established  an  extensive  trade  throughout  the  United  States  and 
in  certain  foreign  countries.  It  has  been  its  practice  to  sell  its  medi- 
cines to  jobbers  and  wholesale  druggists  who  in  turn  sell  to  retail 
druggists  for  sale  to  the  consumer.  In  the  case  of  each  remedy,  it 
has  fixed  not  only  the  price  of  its  own  sales  to  jobbers  and  wholesale 
dealers,  but  also  the  wholesale  and  retail  prices.  The  bill  alleged 
that  most  of  its  sales  were  made  through  retail  druggists  and  that 
the  demand  for  its  remedies  largely  depended  upon  their  good  will 
and  commendation,  and  their  ability  to  realize  a  fair  profit;  that 
certain  retail  establishments,  particularly  those  known  as  depart- 
ment stores,  had  inaugurated  a  "cut-rate"  or  "cut-price"  system 
which  had  caused  "much  confusion,  trouble  and  damage"  to  the 
complainant's  business  and  "injuriously  affected  the  reputation" 
and  "depleted  the  sales"  of  its  remedies;  that  this  injury  resulted 
"  from  the  fact  that  the  majority  of  retail  druggists  as  a  rule  cannot, 
or  believe  that  they  cannot  realize  sufficient  profits"  by  the  sale  of 
the  medicines  "at  the  cut-prices  announced  by  the  cut-rate  and 
department  stores",  and  therefore  are  "unwilling  to,  and  do  not 
keep"  the  medicines  "in  stock"  or  "if  kept  in  stock",  do  not  urge 
or  favor  sales  thereof,  but  endeavor  to  foist  off  some  similar  remedy 
or  substitute,  and  from  the  fact  that  in  the  public  mind  an  article 
advertised  or  announced  at  'cut'  or  'reduced'  price  from  the  es- 
tablished price  suffers  loss  of  reputation  and  becomes  of  inferior 
value  and  demand." 

It  was  further  alleged  that  for  the  purpose  of  protecting  "its 
trade  sales  and  business"  and  of  conserving  "its  good  will  and  repu- 

1 220  U.  S.  373. 


150  Industrial  Combinations  and  Trusts 

tation"  the  complainant  had  established  a  method  "of  governing, 
regulating  and  controlling  the  sale  and  marketing  "of  its  remedies, 
which  is  thus  described  in  the  bill: 

"Contracts  in  writing  were  required  to  be  executed  by  all  jobbers 
and  wholesale  druggists  to  whom  your  orator  sold  its  aforesaid 
remedies,  medicines  and  cures,  of  the  following  tenor  and  effect: 

"  Consignment  Contract — Wholesale. 
"The  Dr.  Miles  Medical  Company. 

"This  agreement  made  by  and  between  the  Dr.  Miles  Medical 
Company,  a  corporation,  of  Elkhart,  Indiana,  hereafter  referred  to 

as  the  Proprietor,  and hereinafter  referred  to  as  the 

Consignee,    Witnesseth: 

"That  the  said  Proprietor  hereby  appoints  said  Consignee  one 
of  its  Wholesale  Distributing  Agents,  and  agrees  to  consign  to  such 
Consignee  for  sale  for  the  account  of  said  Proprietor  such  goods  of 
its  manufacture  as  the  Proprietor  may  deem  necessary,  the  title 
thereto  and  property  therein  to  be  and  remain  in  the  Proprietor 
absolutely  until  sold  under  and  in  accordance  with  the  provisions 
hereof,  and  all  unsold  goods  to  be  immediately  returned  to  said 
Proprietor  on  demand  and  the  cancellation  of  this  agreement.  Said 
goods  to  be  invoiced  to  consignee  at  the  following  prices: 

"Medicines,  of  which  the  retail  price  is  $1.00;  $8.00  per  dozen. 

"  Medicines  (if  any)  of  which  the  retail  price  is  50  cents;  $4.00  per 
dozen. 

"Medicines,  of  which  the  retail  price  is  25  cents:  $2.00  per  dozen. 

"Freight  on  all  orders,  the  invoice  price  of  which  amounts  to 
$100.00  or  more,  to  be  prepaid  by  the  Proprietor;  otherwise,  freight 
to  be  paid  by  Consignee. 

"Said  Consignee  agrees  to  confine  the  sale  of  all  goods  and  prod- 
ucts of  the  said  Proprietor  strictly  to  and  to  sell  only  to  the  desig- 
nated Retail  Agents  of  said  Proprietor  as  specified  in  lists  of  such 
Retail  Agents  furnished  by  said  Proprietor  and  alterable  at  the  will 
of  said  Proprietor,  and  to  faithfully  and  promptly  account  and  pay 
to  the  Proprietor  the  proceeds  of  all  sales,  after  deducting  as  full 
compensation  for  all  services,  charges  and  disbursements  a  com- 
mission of  ten  per  cent  of  the  invoice  value,  and  a  further  com- 
mission of  five  per  cent  on  the  net  amount  of  each  consignment, 
after  deducting  the  said  ten  per  cent  commission,  on  all  advances  on 
account  remitted  within  ten  days  from  date  of  any  consignment, 
it  being  agreed  between  the  parties  hereto  that  such  advances  shall 


Factors'  Agreements  151 

in  no  manner  affect  the  title  to  such  goods,  which  title  shall  remain 
in  the  Proprietor  as  if  no  such  advances  has  been  made;  provided 
that  such  advances  shall  be  repaid  to  said  Consignee  should  the 
said  Proprietor  terminate  this  agreement  and  the  return  of  any  un- 
sold goods  on  which  advances  have  been  made.  Said  Consignee 
guarantees  the  payment  for  all  goods  sold  under  this  agreement  and 
agrees  to  render  a  full  account  and  remit  the  net  proceeds  on  the 
first  day  of  each  month  of  and  for  the  sales  of  the  month  preceding. 
Failure  to  make  such  accounting  and  remittance  within  ten  days 
from  the  first  of  each  month  shall  render  the  whole  account  payable 
and  subject  to  draft,  but  the  proceeds  of  such  draft  shall  not  affect 
the  title  of  any  unsold  goods,  which  shall  remain  in  the  Proprietor 
until  actually  sold,  as  herein  provided. 

"It  is  further  agreed  that  the  Consignee  shall  furnish  the  Pro- 
prietor from  time  to  time  upon  demand  full  statements  of  the  stock 
of  goods  of  the  Proprietor  on  hand  on  any  date  specified  and  that  a 
failure  to  furnish  such  statements  within  ten  days  from  date  of  such 
demand  shall  be  a  sufficient  cause  for  the  cancellation  of  this  agree- 
ment, and  a  demand  for  the  return  of  the  consigned  goods. 

"It  is  further  agreed  that  the  Proprietor  will  cause  each  retail 
package  of  its  goods  to  be  identified  by  a  number  and  said  Consignee 
hereby  agrees  to  furnish  the  said  Proprietor  full  reports  upon  proper 
cards  or  blanks  furnished  by  said  Proprietor  of  the  disposition  of 
each  dozen  or  fraction  of  such  goods  by  means  of  the  identifying 
numbers,  specifying  the  names  and  addresses  of  the  Retail  Agents 
to  whom  such  goods  have  been  delivered  and  the  dates  of  such 
delivery,  and  to  send  such  reports  to  said  Proprietor  at  least  semi- 
monthly, and  at  any  other  time  on  the  request  of  said  Proprietor. 

"It  is  understood  and  agreed  between  the  parties  hereto  that 
the  commissions  herein  specified  shall  not  be  considered  as  earned 
by  said  Consignee  upon  any  goods  of  said  Proprietor  which  shall 
have  been  delivered  to  dealers  not  authorized  agents  of  said  Pro- 
prietor, as  per  list  of  such  agents,  or  upon  any  goods  whose  disposi- 
tion by  said  Consignee  shall  not  have  been  properly  reported  as 
herein  provided,  or  sold  at  prices  less  than  the  prices  authorized, 
and  that  said  Consignee  shall  not  credit  any  such  commissions  when 
making  remittances  on  consignment  account  provided  notice  has 
been  given  by  said  Proprietor  that  such  commissions  are  unearned; 
and  that  if  such  unearned  commissions  have  been  deducted  by  said 
Consignee  in  making  advance  payments  or  monthly  remittances  on 
account  they  shall  be  charged  back  to  said  Consignee  and  credited 


152  Industrial  Combinations  and  Trusts 

and  paid  to  said  Proprietor.  It  is  understood  that  violation  or 
nonobservance  of  any  provision  hereof  by  the  Consignee  shall  make 
this  agreement  terminable  and  all  unsold  goods  returnable  at  the 
option  of  the  Proprietor. 

"It  is  agreed  that  the  goods  of  said  Proprietor  shall  be  sold  by 
said  Consignee  only  to  the  said  Retail  or  Wholesale  Agents  of  said 
Proprietor,  as  per  list  furnished,  at  not  less  than  the  following  prices, 
to-wit: 

"Medicines,  of  which  the  retail  price  is  $1.00;  $8.00  per  dozen 

"Medicines  (if  any)  of  which  the  retail  price  is  50  cents;  $4.00 
per  dozen. 

"Medicines,  of  which  the  retail  price  is  25  cents;  $2.00  per  dozen. 

"Provided,  that  said  Consignee  may  allow  a  cash  discount  not 
exceeding  one  per  cent,  if  paid  within  ten  days  from  date  of  invoice, 
and  that  when  sales  at  one  time  and  at  one  invoice,  amount  to 
$15.00  or  more,  the  said  Consignee  may  allow  three  per  cent  trade 
discount,  and  if  said  purchase  amounts  to  $50.00  or  more,  five  per 
cent  trade  discount,  all  without  cost  to  the  Proprietor,  and  if  such 
$50.00  quantity  shall  be  shipped  direct  to  the  retail  purchaser  from 
the  laboratory  of  said  Proprietor,  on  the  order  from  said  Wholesale 
Distributing  Agent,  freight  will  be  prepaid  by  the  Proprietor,  but 
not  otherwise. 

"This  contract  will  take  effect  when  the  original,  duly  signed 
by  the  Consignee,  has  been  received  and  accepted  by  The  Dr. 
Miles  Medical  Company,  at  Elkhart,  Indiana. 

"Done  under  our  hands ,  A.  D.  1907. 

"Fill  in  date  on  above  line. 

"the  dr.  miles  medical  company. 

" ,  Wholesale  Dealer. 

"Sign  your  name  on  above  line. 
"Original.    Return  in  Enclosed  Envelope." 

"And  written  contracts  were  required  with  all  retailers  of  your 
orator's  said  proprietary  remedies,  medicines  and  cures,  as  follows: 

"Retail  Agency  Contract. 

"The  Dr.  Miles  Medical  Company. 

"This  agreement  between  The  Dr.  Miles  Medical  Company  of 

Elkhart,    Indiana,    and ,  of 

"Retailer's  Name  on  above  line.     Town.     State, 
"hereinafter  referred  to  as  Retail  Agent,  witnesseth: 


Factors'  Agreements  153 


"Appointed  Agent. 

"The  said  Dr.  Miles  Medical  Company  hereby  appoints  said  Re- 
tail Dealer  as  one  of  the  retail  distributing  agents  of  its  Proprietary 
Medicines  and  agrees  that  said  Retail  Agent  may  purchase  the 
Proprietary  Medicines  manufactured  by  said  Dr.  Miles  Medical 
Company  (each  retail  package  of  which  the  said  Company  will 
cause  to  be  identified  by  a  number)  at  the  following  prices,  to  wit: 

"Wholesale  Prices. 

"Medicines,  of  which  the  retail  price  is  $1.00;  $8.00  per  dozen. 
"Medicines,  of  which  the  retail  price  is  50  cents;  $4.00  per  dozen. 
"Medicines,  of  which  the  retail  price  is  25  cents;  $2.00  per  dozen. 

"Quantity  Discount. 

"Provided  that  when  purchases  at  one  time  and  on  one  invoice 
amount  to  $15.00  (or  more),  Wholesale  Distributing  Agents  are 
authorized  to  allow  3  per  cent  trade  discount;  if  such  purchase 
amounts  to  $50.00  (or  more)  5  per  cent  trade  discount  will  be  al- 
lowed, and  if  such  $50.00  quantity  be  shipped  direct  to  the  pur- 
chaser from  the  laboratory  of  said  Dr.  Miles  Medical  Company  for 
the  account  of  such  Wholesale  Agent,  freight  will  be  prepaid,  but 
not  otherwise. 

"Full  Price. 

"In  consideration  whereof  said  Retail  Agent  agrees  in  no  case 
to  sell  or  furnish  the  said  Proprietary  Medicines  to  any  person, 
firm  or  corporation  whatsoever,  at  less  than  the  full  retail  price 
as  printed  on  the  packages,  without  reduction  for  quantity;  and 
said  Retail  Agent  further  agrees  not  to  sell  the  said  Proprietary 
Medicines  at  any  price  to  Wholesale  or  Retail  dealers  not  accred- 
ited agents  of  the  Dr.  Miles  Medical  Company. 

"  Violation. 

"It  is  further  agreed  between  the  parties  hereto  that  the  giving 
of  any  article  of  value,  or  the  making  of  any  concession  by  means 
of  trading  stamps,  cash  register  coupons,  or  otherwise,  for  the  pur- 
pose of  reducing  the  price  above  agreed  upon  shall  be  considered  a 
violation  of  this  agreement,  and  further  it  is  agreed  between  the 
parties  hereto  that  Dr.  Miles  Medical  Company  will  sustain  dam- 


154  Industeial  Combinations  and  Trusts 

age  in  the  sum  of  twenty-five  dollars  ($25.00)  for  each  violation  of 
any  provision  of  this  agreement,  it  being  otherwise  impossible  to 
fix  the  measure  of  damage. 

"  This  contract  will  take  effect  when  a  duplicate  thereof,  duly 
signed  by  the  Retail  Agent,  has  been  received  and  approved  by 
The  Dr.  Miles  Company,  at  its  office  at  Elkhart,  Indiana. 

"Done  under  our  hands ,  A.  D.  1907. 

"Fill  in  date  on  above  line. 

"the  dr.  miles  medical  company, 
" ,  Retail  Dealer. 

"Sign  your  name  on  above  line  in  ink. 
"To  Retail  Dealer; 

"Paste  printed  label,  giving  name  and  address,  that  your  name 
may  be  correctly  listed. 

"Duplicate.      Keep   for   reference." 

As  an  aid  to  the  maintenance  of  the  prices  thus  fixed  the  company 
devised  a  system  for  tracing  and  identifying,  through  serial  numbers 
and  cards,  each  wholesale  and  retail  package  of  its  products. 

It  was  alleged  that  all  wholesale  and  retail  druggists,  "and  all 
dealers  in  proprietary  medicines,"  had  been  given  full  opportunity, 
without  discrimination,  to  sign  contracts  in  the  form  stated,  and 
that  such  contracts  were  in  force  between  the  complainant  "and 
over  four  hundred  jobbers  and  wholesalers  and  twenty-five  thou- 
sand retail  dealers  in  proprietary  medicines  in  the  United  States." 

The  defendant  is  a  Kentucky  corporation  conducting  a  wholesale 
drug  business.  The  bill  alleged  that  the  defendant  had  formerly 
dealt  with  the  complainant  and  had  full  knowledge  of  all  the  facts 
relating  to  the  trade  in  its  medicines;  that  it  had  been  requested, 
and  refused,  to  enter  into  the  wholesale  contract  required  by  the 
complainant;  that  in  the  city  of  Cincinnati,  Ohio,  where  the  defend- 
ant conducted  a  wholesale  drug  store,  there  were  a  large  number  of 
wholesale  and  retail  druggists  who  had  made  contracts,  of  the  sort 
described,  with  the  complainant,  and  kept  its  medicines  on  sale 
pursuant  to  the  agreed  terms  and  conditions.  It  was  charged  that 
the  defendant,  "in  combination  and  conspiracy  with  a  number  of 
wholesale  and  retail  dealers  in  drugs  and  proprietary  medicines, 
who  have  not  entered  into  said  wholesale  and  retail  contracts"  re- 
quired by  the  complainant's  system  and  solely  for  the  purpose  of 
selling  the  remedies  to  dealers  "to  be  advertised,  sold  and  marketed 
at  cut-rates,"  and  "  to  thus  attract  and  secure  custom  and  patronage 
for  other  merchandise,  and  not  for  the  purpose  of  making  or  re- 


Factors'  Agreements  155 

ceiving  a  direct  money  profit"  from  the  sales  of  the  remedies,  had 
unlawfully  and  fraudulently  procured  them  from  the  complainant's 
"wholesale  and  retail  agents"  by  means  "of  false  and  fraudulent 
representations  and  statements,  and  by  surreptitious  and  dishonest 
methods,  and  by  persuading  and  inducing,  directly  and  indirectly," 
a  violation  of  their  contracts. 

It  is  further  charged  that  the  defendant,  having  procured  the 
remedies  in  this  manner,  had  advertised  and  sold  them  at  less  than 
the  jobbing  and  retail  prices  established  by  the  complainant;  and 
that  for  the  purpose  of  concealing  the  source  of  supply  the  identi- 
fying serial  numbers,  which  had  been  stamped  upon  the  labels  and 
cartons,  had  been  obliterated  by  the  defendant  or  by  those  acting 
in  collusion  wTith  the  defendant,  and  the  labels  and  cartons  had  been 
mutilated  thus  rendering  the  list  of  ailments  and  directions  for  use 
illegible,  and  that  the  remedies  in  this  condition  were  sold  both  to 
the  wholesale  and  retail  dealers  and  ultimately  to  buyers  for  use 
at  cut  rates. 


Mr.  Justice  Hughes,  after  making  the  above  statement,  de- 
livered the  opinion  of  the  court. 

The  complainant,  a  manufacturer  of  proprietary  medicines  which 
are  prepared  in  accordance  with  secret  formulas,  presents  by  its 
bill  a  system,  carefully  devised,  by  which  it  seeks  to  maintain  cer- 
tain prices  fixed  by  it  for  all  the  sales  of  its  products  both  at  whole- 
sale and  retail.  Its  purpose  is  to  establish  minimum  prices  at  which 
sales  shall  be  made  by  its  vendees  and  by  all  subsequent  purchasers 
who  traffic  in  its  remedies.  Its  plan  is  thus  to  govern  directly  the 
entire  trade  in  the  medicines  it  manufactures,  embracing  interstate 
commerce  as  well  as  commerce  within  the  States  respectively.  To 
accomplish  this  result  it  has  adopted  two  forms  of  restrictive  agree- 
ments limiting  trade  in  the  articles  to  those  who  become  parties  to 
one  or  the  other.  The  one  sort  of  contract  known  as  "Consignment 
Contract — Wholesale,"  has  been  made  with  over  four  hundred  job- 
bers and  wholesale  dealers,  and  the  other,  described  as  "Retail 
Agency  Contract"  with  twenty-five  thousand  retail  dealers  in  the 
United  States. 

The  defendant  is  a  wholesale  drug  concern  which  has  refused  to 
enter  into  the  required  contract,  and  is  charged  with  procuring 
medicines  for  sale  at  "  cut  prices"  by  inducing  those  who  have  made 
the  contracts  to  violate  the  restrictions.    The  complainant  invokes 


156  Industrial  Combinations  and  Trusts 

the  established  doctrine  that  an  actionable  wrong  is  committed  by 
one  who  maliciously  interferes  with  a  contract  between  two  parties 
and  induces  one  of  them  to  break  that  contract  to  the  injury  of  the 
other  and  that,  in  the  absence  of  an  adequate  remedy  at  law,  equi- 
table relief  will  be  granted.  Angle  v.  Chicago,  St.  Paul,  Minneapolis 
&  Omaha  Railway  Co.,  151  U.  S.  1;  Bittermanv.  Louisville  &  Nash- 
ville Railroad,  207  U.  S.  205. 

The  principal  question  is  as  to  the  validity  of  the  restrictive 
agreements. 

Preliminarily  there  are  opposing  contentions  as  to  the  construc- 
tion of  the  agreements,  or  at  least  of  that  made  with  jobbers  and 
wholesale  dealers.  The  complainant  insists  that  the  "consignment 
contract"  contemplates  a  true  consignment  for  sale  for  account  of 
the  complainant,  and  that  those  who  make  sales  under  it  are  the 
complainant's  agents  and  not  its  vendees.     .     .     . 

There  are  certain  allegations  in  the  bill  which  do  not  accord  with 
the  complainant's  argument.  Thus  it  is  alleged  that  it  "has  been 
and  is  the  uniform  custom"  of  the  complainant  "to  sell  said  medi- 
cines, remedies  and  cures  to  jobbers  and  wholesale  druggists,  who 
in  turn  sell  and  dispose  of  the  same  to  retail  druggists  for  sale  and 
distribution  to  the  ultimate  purchaser  or  consumer."  And  in  set- 
ting forth  the  form  of  the  agreement  in  question  it  is  alleged  that 
it  was  "required  to  be  executed  by  all  jobbers  and  wholesale  drug- 
gists to  whom  your  orator  sold  its  aforesaid  remedies,  medicines 
and  cures."     .... 


The  other  form  of  contract,  adopted  by  the  complainant,  while 
described  as  a  "retail  agency  contract,"  is  clearly  an  agreement 
looking  to  sale  and  not  to  agency.  The  so-called  "retail  agents" 
are  not  agents  at  all,  either  of  the  complainant  or  of  its  consignees, 
but  are  contemplated  purchasers  who  buy  to  sell  again,  that  is, 
retail  dealers.  It  is  agreed  that  they  may  purchase  the  medicines 
manufactured  by  the  complainant  at  stated  prices 


It  will  be  noticed  that  the  "retail  agents"  are  not  forbidden  to 
sell  either  to  wholesale  or  retail  dealers  if  these  are  "accredited 
agents"  of  the  complainant,  that  is  if  the  dealers  have  signed  either 
of  the  two  contracts  the  complainant  requires.  But  the  restriction 
is  intended  to  apply  whether  the  retail  dealers  have  bought  the 


Factors'  Agreements  157 

goods  from  those  who  held  under  consignment  or  from  other  dealers, 
wholesale  or  retail,  who  had  purchased  them.  And  in  which  way 
the  "retail  agents"  who  supplied  the  medicines  to  the  defendant, 
had  bought  them  is  not  shown. 

The  bill  asserts  complainant's  "right  to  maintain  and  preserve 
the  aforesaid  system  and  method  of  contracts  and  sales  adopted  and 
established  by  it."  It  is,  as  we  have  seen,  a  system  of  interlock- 
ing restrictions  by  which  the  complainant  seeks  to  control  not 
merely  the  prices  at  which  its  agents  may  sell  its  products,  but  the 
prices  for  all  sales  by  all  dealers  at  wholesale  or  retail,  whether  pur- 
chasers or  subpurchasers,  and  thus  to  fix  the  amount  which  the 
consumer  shall  pay,  eliminating  all  competition 


But  it  is  insisted  that  the  restrictions  are  not  invalid  either  at 
common  law  or  under  the  act  of  Congress  of  July  2,  1S90,  c.  647, 
26  Stat.  209,  upon  the  following  grounds,  which  may  be  taken  to 
embrace  the  fundamental  contentions  for  the  complainant:  (1) 
That  the  restrictions  are  valid  because  they  relate  to  proprietary 
medicines  manufactured  under  a  secret  process;  and  (2)  that,  apart 
from  this,  a  manufacturer  is  entitled  to  control  the  prices  on  all 
sales  of  his  own  products. 

First:  The  first  inquiry  is  whether  there  is  any  distinction,  with 
respect  to  such  restrictions  as  are  here  presented,  between  the  case 
of  an  article  manufactured  by  the  owner  of  a  secret  process  and  that 
of  one  produced  under  ordinary  conditions.  The  complainant 
urges  an  analogy  to  rights  secured  by  letters  patent 

But  whatever  rights  the  patentee  may  enjoy  are  derived  from 
statutory  grant  under  the  authority  conferred  by  the  Constitution. 
This  grant  is  based  upon  public  considerations.  The  purpose  of 
the  patent  law  is  to  stimulate  invention  by  protecting  inventors  for 
a  fixed  time  in  the  advantages  that  may  be  derived  from  exclusive 
manufacture,  use  and  sale 

The  complainant  has  no  statutory  grant.  So  far  as  appears, 
there  are  no  letters  patent  relating  to  the  remedies  in  question. 
The  complainant  has  not  seen  fit  to  make  the  disclosure  required 
by  the  statute  and  thus  to  secure  the  privileges  it  confers.  Its 
case  lies  outside  the  policy  of  the  patent  law,  and  the  extent  of  the 
right  which  that  law  secures  is  not  here  involved  or  determined. 


158  Industrial  Combinations  and  Trusts 

Second.  We  come,  then,  to  the  second  question,  whether  the 
complainant,  irrespective  of  the  secrecy  of  its  process,  is  entitled 
to  maintain  the  restrictions  by  virtue  of  the  fact  that  they  relate 
to  products  of  its  own  manufacture. 

The  basis  of  the  argument  appears  to  be  that,  as  the  manufac- 
turer may  make  and  sell,  or  not,  as  he  chooses,  he  may  affix  condi- 
tions as  to  the  use  of  the  article  or  as  to  the  prices  at  which  pur- 
chasers may  dispose  of  it.  The  propriety  of  the  restraint  is  sought 
to  be  derived  from  the  liberty  of  the  producer. 

But  because  a  manufacturer  is  not  bound  to  make  or  sell,  it 
does  not  follow  that  in  case  of  sales  actually  made  he  may  impose 
upon  purchasers  every  sort  of  restriction 

Nor  can  the  manufacturer  by  rule  and  notice,  in  the  absence  of 
contract  or  statutory  right,  even  though  the  restriction  be  known  to 
purchasers,  fix  prices  for  future  sales.  It  has  been  held  by  this 
court  that  no  such  privilege  exists  under  the  copyright  statutes, 
although  the  owner  of  the  copyright  has  the  sole  right  to  vend 
copies  of  the  copyrighted  production.  Bobbs-Merrill  Co.  v.  Straus, 
210  U.  S.  339. 

.  .  Whatever  right  the  manufacturer  may  have  to  project  his 
control  beyond  his  own  sales  must  depend,  not  upon  an  inherent 
power  incident  to  production  and  original  ownership,  but  upon 
agreement. 

The  present  case  is  not  analogous  to  that  of  a  sale  of  good  will, 
or  of  an  interest  in  a  business,  or  of  the  grant  of  a  right  to  use  a 
process  of  manufacture.  The  complainant  has  not  parted  with  any 
interest  in  its  business  or  instrumentalities  of  production.  It  has 
conferred  no  right  by  virtue  of  which  purchasers  of  its  products 
may  compete  with  it.  It  retains  complete  control  over  the  busi- 
ness in  which  it  is  engaged,  manufacturing  what  it  pleases  and 
fixing  such  prices  for  its  own  sales  as  it  may  desire.  Nor  are  we 
dealing  with  a  single  transaction,  conceivably  unrelated  to  the 
public  interest.  The  agreements  are  designed  to  maintain  prices, 
after  the  complainant  has  parted  with  the  title  to  the  articles,  and 
to  prevent  competition  among  those  who  trade  in  them. 

But  agreements  or  combinations  between  dealers,  having  for 
their  sole  purpose  the  destruction  of  competition  and  the  fixing  of 
prices,  are  injurious  to  the  public  interest  and  void.    They  are  not 


Factors'  Agreements  159 

saved  by  the  advantages  which  the  participants  expect  to  derive 

from  the  enhanced  price  to  the  consumer 

The  complainant's  plan  falls  within  the  principle  which  condemns 
contracts  of  this  class.  It,  in  effect,  creates  a  combination  for  the 
prohibited  purposes.  No  distinction  can  properly  be  made  by 
reason  of  the  particular  character  of  the  commodity  in  question. 
It  is  not  entitled  to  special  privilege  or  immunity.  It  is  an  article 
of  commerce  and  the  rules  concerning  the  freedom  of  trade  must  be 
held  to  apply  to  it.  Nor  does  the  fact  that  the  margin  of  freedom 
is  reduced  by  the  control  of  production  make  the  protection  of 
what  remains,  in  such  a  case,  a  negligible  matter.  And  where 
commodities  have  passed  into  the  channels  of  trade  and  are  owned 
by  dealers,  the  validity  of  agreements  to  prevent  competition  and 
to  maintain  prices  is  not  to  be  determined  by  the  circumstance 
whether  they  were  produced  by  several  manufacturers  or  by  one, 
or  whether  they  were  previously  owned  by  one  or  by  many.  The 
complainant  having  sold  its  product  at  prices  satisfactory  to  it- 
self, the  public  is  entitled  to  whatever  advantage  may  be  derived 
from  competition  in  the  subsequent  traffic. 


CHAPTER  VIII 

INTERNATIONAL  AGREEMENTS 

NOTE 

Comparatively  speaking,  international  agreements  have  been 
rare  in  the  combination  and  trust  movement.  On  this  account, 
if  for  no  other  reason,  those  that  have  been  made  are  of  peculiar 
interest. 

It  is  a  rather  remarkable  coincidence  that  the  two  most  famous 
international  agreements  should  have  been  brought  into  being  by 
identical  sets  of  circumstances.  In  the  case  of  the  tobacco  combi- 
nation, the  American  manufacturers  invaded  the  territory  across 
the  water.  In  the  case  of  the  explosives  trade,  the  situation  was 
exactly  the  reverse,  and  the  foreign  companies  were  the  aggressors. 
In  each  case,  the  outcome  was  the  adoption  of  an  international 
agreement,  drafts  of  which  are  given  below. 

In  the  nineties  the  American  Tobacco  Company  established  a 
depot  in  London,  England.  In  1901,  this  company  with  a  view  to 
purchase,  opened  negotiations  with  Ogden's  (Limited),  one  of  the 
largest  tobacco  concerns  in  Great  Britain.  By  the  end  of  September 
of  that  year  substantially  all  the  outstanding  stock  of  Ogden's  had 
been  acquired.  This  purchase  alarmed  the  British  Manufacturers, 
and  thirteen  of  the  largest  concerns  in  England  united  to  form  the 
Imperial  Tobacco  Company.  This  organization  began  an  active 
campaign  to  check  the  invasion  inaugurated  by  the  American 
Tobacco  Company,  and  threatened,  as  a  part  of  their  program,  to 
invade  the  territory  on  our  side  of  the  Atlantic.  The  upshot  of  the 
matter  was  an  agreement,  embodied  in  two  documents,  which  was 
made  on  September  27,  1902. 

In  1897,  certain  foreign  manufacturers  of  black  powder,  detona- 
tors and  high  explosives,  began  the  erection  of  factories  in  James- 
burg,  N.  J.  intending  to  enter  into  competition  with  the  explosives 
combination  which  at  that  time  existed  in  the  United  States. 
Representatives  of  the  latter  visited  Europe,  toward  the  close  of 
1897,  and  began  negotiations  with  the  foreign  manufacturers  who 

160 


International  Agreements  161 

had  begun  factories  in  the  United  States.  A  draft  of  an  agreement 
embodying  the  result  of  these  negotiations  was  ratified  by  the 
American  Companies.  This  agreement  has  been  variously  styled 
the  London  Agreement,  Jamesburg  Agreement,  International 
Agreement,  and  European  Agreement.  It  was  dated  October  26, 
1907,  and  is  probably  the  most  interesting  single  document  among 
the  many  which  the  industrial  combination  and  trust  movement 
has  produced.  Another  international  agreement  that  has  only 
recently  come  to  light  is  the  A.  J.  A.  G.  Agreement  in  the  alumi- 
num trade,  excerpts  from  which  form  the  fourth  exhibit  of  this 
chapter. — Ed. 

Exhieit  1 

agreement  of  the  american  tobacco  company  interests  and 
the  imperial  tobacco  company,  limited,  relative  to  the 
limitation  of  the  sphere  of  the  operation  of  each,  and 
the  transfer  of  ogden's  limited  x 

An  agreement  made  the  twenty-seventh  day  of  September,  one 
thousand  nine  hundred  and  two,  between  Ogden's  Limited,  being 
a  company  duly  incorporated  under  English  law  (hereinafter  re- 
ferred to  as  the  "Ogden  Company"),  of  the  first  part;  The  Ameri- 
can Tobacco  Company,  a  corporation  organized  and  existing  under 
and  by  virtue  of  the  laws  of  the  State  of  New  Jersey,  one  of  the 
States  of  the  United  States,  of  America  (hereinafter  referred  to 
as  the  "American  Company"),  of  the  second  part;  Continental 
Tobacco  Company,  a  corporation  organized  and  existing  under 
and  by  virtue  of  the  laws  of  the  said  State  of  New  Jersey  (herein- 
after referred  to  as  the  "  Continental  Company"),  of  the  third  part; 
American  Cigar  Company,  a  corporation  organized  and  existing 
under  and  by  virtue  of  the  laws  of  the  said  state  of  New  Jersey 
(hereinafter  referred  to  as  the  "Cigar  Company"),  of  the  fourth 
part;  Consolidated  Tobacco  Company,  a  corporation  organized 
and  existing  under  and  by  virtue  of  the  said  laws  of  the  said  State 
of  New  Jersey  (hereinafter  referred  to  as  the  "Consolidated  Com- 
pany"), of  the  fifth  part;  British  Tobacco  Company,  Limited, 
being  a  company  incorporated  under  English  law  (hereinafter 
referred  to  as  the  "British  Company"),  of  the  sixth  part;  and  the 
Imperial  Tobacco  Company  (of  Great  Britain  and  Ireland),  Lim- 

1  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry, 
Exhibit  No.  1,  Part  I,  pp.  431  ff. 


1 62  Industrial  Combinations  and  Trusts 

ited,  a  corporation  incorporated  under  English  law  (hereinafter 
referred  to  as  the  "Imperial  Company"),  of  the  seventh  part. 


14.  Each  of  the  parties  hereto  of  the  first  six  parts  for  itself  and 
not  the  one  for  any  others  agrees  and  shall  covenant  with  the  Im- 
perial Company  that  the  covenanting  party  will  not  at  any  time 
after  the  transfer  day,  except  as  hereinafter  expressly  excepted, 
either  solely  or  jointly  with  any  other  person  or  persons,  company 
or  companies,  directly  or  indirectly  carry  on  or  be  employed,  en- 
gaged, or  concerned,  or  interested  in  the  business  in  the  United 
Kingdom  of  a  tobacco  manufacturer,  or  in  any  dealing  in  tobacco 
or  its  products  therein,  or  sanction  the  use  of  its  name  in  connec- 
tion with  any  such  business  therein,  save  so  far  as  the  covenanting 
company,  shall,  as  a  member  of  the  Imperial  Company  or  as  a  mem- 
ber of  any  company  manufacturing  cigars  in  the  United  States  or 
of  any  other  companies  formed  or  to  be  formed  with  the  concur- 
rence of  the  Imperial  Company,  be  interested  in  the  business 
thereof,  or  through,  or  in  connection  with  the  Imperial  Company, 
as  hereinafter  provided.  The  said  covenanting  parties  will  procure 
the  following  directors  or  some  or  one  of  them,  namely,  James 
Buchanan  Duke,  Benjamin  Newton  Duke,  Thomas  Fortune  Ryan, 
John  Blackwell  Cobb,  Williamson  Whitehead  Fuller,  William 
Rees  Harris,  Percival  Smith  Hill,  and  Caleb  Cushing  Dula,  and  will, 
respectively,  use  their  best  endeavors  to  procure  such  other  direc- 
tors as  shall  be  required  by  the  Imperial  Company  to  enter  into  a 
covenant  with  the  Imperial  Company  similar  to  that  referred  to 
in  the  preceding  part  of  this  clause. 

15.  The  Imperial  Company  similarly  agrees  and  shall  covenant 
with  the  American  Company,  the  Continental  Company,  the  Cigar 
Company,  and  the  Consolidated  Company,  that  the  Imperial 
Company  will  not  at  any  time  after  the  transfer  day,  except  as 
hereinafter  expressly  excepted,  either  solely  or  jointly,  with  any 
other  person  or  persons,  company  or  companies,  directly  or  indi- 
rectly, carry  on  or  be  employed,  engaged,  concerned,  or  interested 
in  the  business  in  the  United  States  of  a  tobacco  manufacturer  or 
in  any  dealing  in  tobacco  or  its  products  therein,  or  sanction  the 
use  of  its  name  in  connection  with  any  such  business  therein  save 
as  far  as  the  Imperial  Company  shall,  as  a  member  of  any  other 
company  formed  or  to  be  formed  with  the  concurrence  of  the  Ameri- 
can Company,  the  Continental  Company,  the  Cigar  Company,  or 


International  Agreements  163 

the  Consolidated  Company,  be  interested  in  the  business  thereof, 
and  save  and  except  that  the  Imperial  Company  shall  be  at  liberty 
to  buy  and  treat  tobacco  leaf  and  other  materials  in  the  United 
States  for  the  purpose  of  its  business,  and  save  and  except  such 
business  as  shall  be  carried  on  through  or  in  connection  with  the 
American  Company,  the  Continental  Company,  the  Cigar  Com- 
pany, or  the  Consolidated  Company  as  hereinafter  provided,  the 
Imperial  Company  will  procure  the  following  of  its  directors,  viz., 
Sir  William  Henry  Wills,  Henry  Overton  Wills,  Sir  Edward  Payson 
Wills,  Sir  Frederick  Wills,  George  Alfred  Wills,  Henry  Herbert 
Wills,  Walter  Melville  Wills,  Charles  Edward  Lambert,  John 
Dane  Player,  Walter  Butler,  William  Goodacre  Player,  and  William 
Ruddell  Clarke,  and  will  use  its  best  endeavors  to  procure  such 
other  of  its  directors  as  shall  be  required  by  the  American  Company, 
the  Continental  Company,  the  Cigar  Company,  and  the  Consoli- 
dated Company  to  enter  into  a  covenant  similar  to  that  referred  to 
in  the  preceding  part  of  this  clause. 

16.  Forthwith,  or  as  soon  as  may  be  after  the  transfer  day,  the 
Imperial  Company  shall  duly  appoint  to  its  board  three  (3)  direc- 
tors, nominated  by  the  Ogden  Company,  subject  to  their  acquiring 
the  necessary  qualifications,  and  the  directors  so  appointed  shall 
be  reelected  at  the  next  ordinary  general  meeting  and  shall  be  classi- 
fied so  that  only  a  due  proportion  of  them  shall  retire  in  each  year. 

17.  The  export  business  of  the  Ogden  Company  hereinbefore 
excluded  from  the  operation  of  this  contract  is  to  be  the  subject 
of  an  agreement  entered  into  contemporaneously  with  this  agree- 
ment, and  providing  for  the  transfer  to  a  separate  company  of  the 
export  business  from  the  United  Kingdom  (except  to  the  United 
States)  not  only  of  the  Ogdens  Company,  but  also  of  the  Imperial 
Company  and  of  Salmon  &  Gluckstein,  Limited,  and  the  export 
business  from  the  United  States  of  the  American  Company,  the 
Continental  Company,  and  the  Cigar  Company  (except  to  the 
United  Kingdom),  which  agreement  has  been  already  prepared  and 
is  executed  contemporaneously  with  this  agreement.  For  the  pur- 
pose of  construing  this  agreement  the  export  business  of  the  said 
several  companies  shall  be  deemed  to  be  herein  defined  in  the  same 
manner  as  in  the  said  contemporaneous  agreement.  The  "  United 
Kingdom"  and  the  "United  States"  are  also,  respectively,  to  be 
deemed  to  be  defined  as  defined  in  the  same  agreement. 

18.  From  and  after  the  date  of  transfer,  subject  to  agreements 
already  existing  between  the  Imperial  Company  and  its  present 


164  Industrial  Combinations  and  Trusts 

agents,  neither  the  Imperial  Company  nor  Salmon  &  Gluckstein, 
Limited,  shall  sell  or  consign  any  tobacco  products  to  any  person, 
firm,  or  company  within  the  United  States  except  the  American 
Company,  or  persons  or  companies  designated  by  it,  and  on  the 
other  hand  the  American  Company,  the  Continental  Company, 
and  the  Cigar  Company,  and  the  Consolidated  Company,  respec- 
tively, shall  not  sell  or  consign  any  tobacco  products  to  any  person, 
firm,  or  company  in  the  United  Kingdom  except  the  Imperial  Com- 
pany, or  any  persons  or  companies  designated  by  it,  the  intention 
being  that  the  American  Company  or  its  nominees  shall  be  the  sole 
customer  of  the  Imperial  Company  and  of  Salmon  &  Gluckstein, 
Limited,  in  the  United  States,  and  that  the  Imperial  Company  or 
its  nominees  shall  be  the  sole  customer  of  the  American  Company, 
the  Continental  Company,  and  the  Cigar  Company  in  the  United 
Kingdom.  None  of  the  parties  shall  sell  any  tobacco  products  to 
any  person,  firm,  or  company  whom  they  have  reason  to  believe 
will  export  the  same  to  the  territory  in  which  the  seller  has  agreed 
not  to  sell  such  goods  as  herein  provided. 

19.  For  American  goods  sold  to  the  Imperial  Company  or  its 
nominees  for  sale  in  the  United  Kingdom  in  pursuance  of  the  pre- 
ceding clause  the  Imperial  Company  shall  pay  the  cost  of  manu- 
facture and  packing  of  such  goods  (but  not  including  any  expenses 
of  advertising  and  selling)  plus  ten  per  cent  (10  per  cent),  and 
shall  also  pay  freights,  customs  charges  and  duties,  and  for  goods 
of  the  Imperial  Company  and  of  Salmon  &  Gluckstein,  Limited, 
sold  by  them  to  the  American  Company,  the  Continental  Com- 
pany, or  the  Cigar  Company,  for  sale  within  the  United  States,  the 
American  Company,  the  Continental  Company,  or  the  Cigar  Com- 
pany, as  the  case  may  be,  shall  pay  the  cost  of  the  manufacture 
and  packing  thereof  (but  not  including  any  expenses  of  advertising 
or  selling)  plus  ten  per  cent  (10  per  cent),  and  shall  also  pay  freights, 
customs  charges,  and  duties.  In  all  cases  of  sales  under  this  clause 
the  invoices  of  the  respective  vendors  shall  be  final  and  binding  as  to 
cost.  The  Imperial  Company  shall  be  empowered  by  the  American 
Company  and  the  Continental  Company  to  manufacture  their 
brands  within  the  United  Kingdom  for  sale  therein,  and  the  Ameri- 
can Company,  the  Continental  Company,  and  the  Cigar  Company 
shall  be  empowered  to  manufacture  the  brands  of  the  Imperial  Com- 
pany in  the  United  States  for  sale  therein,  and  each  party  shall 
manufacture  the  brands  of  the  other  party  upon  recipes  and  form- 
ula? to  be  supplied  by  the  other. 


International  Agreements  165 

20.  As  early  as  practicable  and  subject  to  existing  contracts  and 
obligations  of  the  companies  manufacturing  and  selling  the  cigars 
and  cigarettes  hereinafter  referred  to,  the  American  Company,  the 
Continental  Company,  and  the  Cigar  Company  will  appoint  or 
procure  the  appointment  of  the  Imperial  Company  sole  agent  for 
the  sale  within  the  United  Kingdom  of  Havana  and  Porto  Rico 
cigars  and  Havana  and  Porto  Rico  cigarettes  directly  or  indirectly 
controlled  by  the  American  Company,  the  Continental  Company, 
and  the  Cigar  Company,  and  such  agency  shall  be  upon  the  terms 
of  the  Imperial  Company  receiving  a  net  commission  of  seven  and 
one-half  per  cent  (7-}  2  Per  cent)  upon  the  Havana  and  Porto  Rico 
prices,  respectively,  and  being  allowed  three  months'  credit  for  pay- 
ment of  the  invoice  prices  less  such  7-^2  per  cent  and  the  Havana 
and  Porto  Rico  prices  charged  the  Imperial  Company  shall,  from 
time  to  time  and  at  all  times,  be  as  low  as  the  prices  charged  by  the 
American  Company,  the  Continental  Company,  and  the  Cigar 
Company,  or  parties  controlled  by  them,  for  similar  cigars  and 
cigarettes  sold  to  their  most-favored  customers,  subject  only  to  the 
exception  that  if  at  any  time  the  prices  of  cigars  or  cigarettes  sold 
to  any  country  not  affecting  British  trade  shall  be  temporarily 
reduced  for  the  purposes  of  competition,  such  local  and  temporary 
reduction  is  not  to  be  taken  into  account  for  the  purpose  of  fixing 
the  price  of  cigars  and  cigarettes  sold  to  the  Imperial  Company. 
If  and  so  far  as  the  control  of  any  other  cigar  trade  not  hereinbefore 
provided  for  is  now  possessed  or  shall  be  acquired  by  the  American 
Company,  the  Continental  Company,  and  the  Cigar  Company,  or 
any  of  them,  a  similar  agency  is  to  be  given  to  the  Imperial  Com- 
pany in  respect  thereof.  The  Imperial  Company  shall  not  (except 
to  complete  any  other  contract  already  made)  handle  or  sell  any 
other  Havana  or  Porto  Rico  cigars  and  cigarettes  than  those  of  the 
American  Company,  the  Continental  Company,  and  the  Cigar 
Company,  for  which  the  Imperial  Company  holds  the  aforesaid 
agency,  and  a  similar  provision  shall  apply  to  any  other  cigars  or 
cigarettes  for  which  the  aforesaid  agency  may  be  hereafter  granted, 
and  the  Imperial  Company  shall  use  its  best  efforts  and  endeavors 
to  promote  and  enlarge  the  sales  of  all  such  cigars  and  cigarettes 
within  the  United  Kingdom,  and  provided  the  Imperial  Company 
maintains  a  sale  of  the  Havana  cigars  or  cigarettes  included  in 
the  agency  hereinbefore  provided  for  equal  to  not  less  than  seventy- 
two  per  cent  (72  per  cent)  of  the  total  annual  importations  into 
the  United  Kingdom,  duty  paid,  of  cigars  and  cigarettes  made  in 


166  Industrial  Combinations  and  Trusts 

Cuba,  the  American  Company,  and  the  Cigar  Company,  and  the 
Continental  Company  shall  not  be  entitled  to  call  in  question  the 
efforts  and  endeavors  of  the  Imperial  Company  hereinbefore  re- 
quired: Provided  always,  That  the  percentage  to  be  maintained  by 
the  Imperial  Company  shall  be  ascertained  upon  the  average  of 
three  years.  The  Imperial  Company  shall  sell  the  cigars  and  ciga- 
rettes from  time  to  time  falling  within  the  said  agency  at  prices  not 
exceeding  their  cost  to  the  Imperial  Company  with  the  addition  of 
freights,  railway  charges,  packages,  customs  duties,  and  custom 
charges,  and  the  said  commission  of  7-^2  per  cent.  The  American 
Company,  the  Continental  Company,  and  the  Cigar  Company  will 
not  knowingly  supply  cigars  or  cigarettes  to  be  transshipped  or 
indirectly  imported  into  the  United  Kingdom.  The  aforesaid 
proportion  of  72  per  cent  has  been  based  upon  the  belief  and  as- 
sumption that  the  parties  hereto  of  the  second,  third,  fourth,  and 
fifth  parts  or  some  or  one  of  them  control  or  will  shortly  control 
not  less  than  80  per  cent  of  the  aforesaid  annual  importation,  and 
if  it  shall  hereafter  appear  that  the  proportion  thereof  actually  con- 
trolled by  the  said  parties  is  less  than  80  per  cent,  then  in  such  case 
the  said  proportion  of  72  per  cent  shall  be  correspondingly  re- 
duced. 

21.  The  Imperial  Company  shall  cause  Salmon  &  Gluckstein, 
Limited,  and  A.  I.  Jones  &  Company,  Limited,  and  any  other  com- 
panies, firms,  or  persons  from  time  to  time  controlled  by  it  (subject 
to  the  performance  of  any  prior  contracts) ,  to  purchase  their  cigars 
of  any  brands  comprised  in  the  said  agency  through  the  Imperial 
Company  as  agent  under  the  last  preceding  clause. 

22.  The  American  Company,  the  Continental  Company,  the 
Cigar  Company,  and  the  Consolidated  Company,  together  with 
their  directors,  entering  into  the  covenant  aforesaid,  are  to  give  to 
the  Imperial  Company  in  the  United  Kingdom  the  full  benefit  of 
their  good  will  and  support,  and  on  the  other  hand  the  Imperial 
Company,  together  with  its  directors,  entering  the  covenant  afore- 
said, are  to  give  the  American  Company,  the  Continental  Company, 
and  the  Cigar  Company  in  the  United  States  the  full  benefit  of 
their  good  will  and  support,  and  with  a  view  to  giving  further  ef- 
fect to  the  intention  of  the  parties  as  in  this  clause  hereinbefore 
expressed  the  allottees  of  the  said  1,500,000  ordinary  shares  of 
the  Imperial  Company  are  not  to  sell  or  transfer  more  than  10  per 
cent  of  the  said  shares  within  the  period  of  five  (5)  years  from  the 
date  of  their  allotment,  if  and  so  long  as  the  present  directors  of 


International  Agreements  167 

the  Imperial  Company,  or  some  of  them,  shall  hold  not  less  than 
3,000,000  ordinary  shares  of  the  Imperial  Company. 

23.  This  agreement  is  to  be  construed  and  take  effect  as  a  con- 
tract made  in  England  and  in  accordance  with  the  law  of  England, 
but  to  the  intent  that  any  of  the  parties  may  sue  in  its  own  country. 
The  Imperial  Company  is  always  to  have  an  agent  for  service  in  the 
United  States,  and  each  of  them,  the  American  Company,  the  Con- 
tinental Company,  the  Cigar  Company,  and  the  Consolidated  Com- 
pany, is  always  to  have  an  agent  for  service  in  England,  and  service 
of  any  such  agent  of  any  notice,  summons,  order,  judgment,  or 
other  process  or  document  in  respect  of  this  agreement,  or  any  mat- 
ter arising  thereout,  shall  be  deemed  to  be  good  service  on  the  party 
appointing  such  agent,  and  as  regards  each  of  the  said  parties 
whilst  and  whenever  there  is  no  other  agent  the  following  shall  be 
considered  to  be  the  agents  of  the  respective  parties  duly  appointed 
under  this  clause,  namely:  For  the  Imperial  Company,  Samuel 
Untermeyer,  of  New  York  City,  American  counsel;  and  for  the 
American  Company,  the  Continental  Company,  the  Cigar  Com- 
pany, and  the  Consolidated  Company,  Joseph  Hood,  41  Castle 
street,  Liverpool,  solicitor.  Notice  of  any  appointment  under  this 
clause  shall  be  from  time  to  time  given  by  the  appointor  to  the 
other  parties  hereto.  The  mode  of  service  sanctioned  by  this 
clause  is  not  in  any  way  to  prejudice  or  preclude  any  mode 
of  service  which  would  be  allowable  if  this  clause  were 
omitted. 

24.  So  far  as  it  is  necessary  for  the  purpose  of  making  the  issue  of 
ordinary  shares  hereinbefore  mentioned  the  Imperial  Company 
shall  forthwith  take  the  necessary  steps  for  increasing  its  capital  by 
the  creation  of  an  adequate  number  of  ordinary  shares  (half  pre- 
ferred and  half  deferred)  which  shall  rank  pari  passu  with  and  shall 
be  of  the  same  respective  classes  and  confer  the  same  rights  and 
privileges  as  the  5,000,000  preferred  ordinary  shares,  and  the 
5,000,000  deferred  ordinary  shares  forming  part  of  the  original 
capital  of  the  Imperial  Company. 

In  witness  whereof  the  said  parties  of  the  first,  second,  sixth,  and 
seventh  parts  have  hereunto  affixed  their  common  seals,  and  the 
said  parties  of  the  third,  fourth,  and  fifth  parts  have  executed  this 
agreement  under  the  hand  of  their  respective  presidents  the  day  and 
year  first  above  written. 

(Signatures). 


t68  Industrial  Combinations  and  Trusts 


Exhibit  2 

agreement  made  between  the  american  tobacco  company 
interests  and  the  imperial  tobacco  company,  limited,  rel- 
ative to  the  control  of  business  by  the  british-american 
tobacco  company,  limited  l 

An  agreement  made  the  twenty-seventh  day  of  September,  one 
thousand  nine  hundred  and  two,  between  The  Imperial  Tobacco 
Company  (of  Great  Britain  and  Ireland),  Limited,  being  an  Eng- 
lish company  duly  incorporated  under  English  law  (hereinafter 
referred  to  as  the  "Imperial  Company"),  of  the  first  part;  Ogden's 
Limited,  also  being  a  company  incorporated  under  English  law 
(hereinafter  referred  to  as  the  "Ogden  Company"),  of  the  second 
part;  The  American  Tobacco  Company,  a  corporation  organized 
and  existing  under  and  by  virtue  of  the  laws  of  the  State  of  New 
Jersey,  one  of  the  States  of  the  United  States  of  America  (here- 
inafter referred  to  as  the  "American  Company"),  of  the  third 
part;  Continental  Tobacco  Company,  a  corporation  organized  and 
existing  under  and  by  virtue  of  the  laws  of  the  said  State  of  New 
Jersey  (hereinafter  referred  to  as  the  "Continental  Company"), 
of  the  fourth  part;  American  Cigar  Company,  a  corporation  or- 
ganized and  existing  under  and  by  virtue  of  the  laws  of  the  said 
State  of  New  Jersey  (hereinafter  referred  to  as  the  "Cigar  Com- 
pany"), of  the  fifth  part;  Consolidated  Tobacco  Company,  a  cor- 
poration organized  and  existing  under  and  by  virtue  of  the  laws 
of  the  said  State  of  New  Jersey  (hereinafter  referred  to  as  the 
"Consolidated  Company"),  of  the  sixth  part;  and  Williamson 
Whitehead  Fuller  and  James  Inskip,  on  behalf  of  a  company  in- 
tended to  be  formed  under  the  companies'  acts,  1862  to  1900,  with 
the  name  of  "British- American  Tobacco  Company,  Limited" 
(hereinafter  referred  to  as  the  "British- American  Company"), 
of  the  seventh  part. 

Whereas  the  parties  hereto  of  the  first  five  parts  now  respec- 
tively carry  on  business  as  tobacco  manufacturers  and  other  an- 
cillary businesses,  which  comprise  as  to  the  parties  hereto  of  the 
first  and  second  parts,  businesses  carried  on  within  the  United 
Kingdom  of  Great  Britain  and  Ireland  and  export  businesses  as 
hereinafter  defined,  and  as  to  the  parties  hereto  of  the  third,  fourth, 

1  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry, 
Exhibit  No.  2,  Part  1,  pp.  440  ff. 


International  Agreements  169 

and  fifth  parts,  businesses  carried  on  within  the  United  States  of 
America,  and  export  businesses  as  also  hereinafter  defined,  and 
proposals  have  been  made  for  amalgamating  the  said  export  busi- 
nesses by  transfer  thereof  to  the  British- American  Company  upon 
the  terms  and  conditions  hereinafter  expressed. 
Now  therefore  it  is  hereby  agreed  as  follows: 

1.  In  this  agreement  the  words  "United  Kingdom"  mean  Great 
Britain  and  Ireland  and  the  Isle  of  Man. 

The  words  "United  States"  mean  the  United  States  of  America 
as  now  constituted — Cuba,  Porto  Rico,  the  Hawaiian  Islands,  and 
the  Philippine  Islands. 

The  words  "export  business"  mean  the  manufacture  of  and 
dealing  in  tobacco  and  its  products  in  any  country  or  place  outside 
the  United  Kingdom  and  the  United  States  and  the  manufacture 
of  and  dealing  in  tobacco  and  its  products  within  the  United  King- 
dom for  export  to  any  other  country  except  the  United  States,  and 
the  manufacture  of  and  dealing  in  tobacco  and  its  products  in  the 
United  States  (except  in  Cuba,  Porto  Rico,  the  Hawaiian  Islands, 
and  the  Philippine  Islands)  for  the  purpose  of  export  to  any  other 
country  except  the  United  Kingdom,  and  the  manufacture  and 
selling  in  the  United  Kingdom  and  the  United  States,  respectively, 
of  tobacco  to  be  supplied  to  ships  in  port  for  the  purpose  of  ships' 
stores. 

2.  The  parties  hereto  of  the  first  five  parts  shall  sell  and  the 
British- American  Company  shall  purchase  the  export  businesses 
as  hereinbefore  defined  of  the  parties  of  the  first  five  parts,  and  the 
good  will  appertaining  thereto,  which  shall  include  formulae  and 
recipes  of  preparation,  treatment,  and  manufacture,  as  well  as 
license  to  use  patent  rights,  trade-marks,  brands,  licenses,  and 
other  exclusive  rights  and  privileges  for  the  purpose  of  such  ex- 
port business,  and  shall  also  include  all  stock  or  shares  in  com- 
panies incorporated  in  countries  foreign  to  the  United  Kingdom 
and  the  United  States  owned  or  held  by  the  parties  of  the  first 
six  parts,  including  all  shares  of  the  American  Company  in  Georg 
A.  Jasmatzi  Company  (of  Dresden),  and  all  shares  of  the  Im- 
perial Company  in  W.  D.  &  H.  O.  Wills  (Australia),  Limited,  at 
the  price  of  two  million  eight  hundred  and  twenty  thousand  pounds 
(£2,820,000),  of  which  two  equal  third  parts,  or  one  million  eight 
hundred  and  eighty  thousand  pounds  (£1,880,000),  shall  be  pay- 
able to  the  Ogden  Company,  the  American  Company,  the  Conti- 
nental   Company,    the    Cigar    Company,    and    the    Consolidated 


170  Industrial  Combinations  and  Trusts 

Company,  or  some  of  them,  In  such  proportions  as  they  shall  mu- 
tually agree  and  as  shall  be  indicated  in  writing  under  the  hands 
of  their  respective  presidents  or  chairmen  as  the  case  may  be,  and 
one-third,  or  nine  hundred  and  forty  thousand  pounds  (£940,000), 
shall  be  payable  to  the  Imperial  Company,  and  the  said  prices 
shall  be  satisfied  by  the  allotment  to  the  parties  entitled  thereto 
of  fully  paid-up  ordinary  shares  in  the  British-American  Company 
to  be  treated  as  of  par  value.  The  said  sale  and  purchase  shall 
take  effect  as  to  the  Ogden  Company  on  the  30th  September, 
1902  (hereinafter  referred  to  as  "the  Ogden  transfer  day"),  and 
as  to  the  parties  hereto  of  the  first,  third,  fourth,  fifth,  and  sixth 
parts  on  the  31st  October,  1902  (hereinafter  referred  to  as  "the 
Imperial  and  American  transfer  day"). 

3.  In  addition  to  the  ordinary  shares  by  the  preceding  paragraph 
agreed  to  be  allotted  in  payment  of  the  said  purchase  money,  the 
Imperial  Company  shall  take  and  pay  cash  for  three  hundred 
thousand  (300,000)  additional,  one-pound  ordinary  shares,  and  the 
American  Company,  the  Continental  Company,  the  Cigar  Com- 
pany, and  the  Consolidated  Company,  or  some  or  one  of  them, 
shall  take  and  pay  cash  for  six  hundred  thousand  (600,000)  ad- 
ditional one-pound  ordinary  shares  in  the  British-American  Com- 
pany, Limited,  and  such  shares  shall  be  alloted  to  such  parties  at 
once. 

4.  The  Imperial  Company  and  the  Ogden  Company  will,  re- 
spectively, sell  to  the  British- American  Company  their  several 
lands,  buildings,  and  hereditaments  used  as  export  factories,  and 
the  plant  and  equipment  and  stock  in  trade  at  the  date  of  transfer 
forming  a  part  of  the  said  export  businesses  or  undertakings,  and 
the  American  Company,  the  Continental  Company,  and  the  Cigar 
Company  will  sell  to  the  British- American  Company  factories  for 
export  business  and  the  plant  and  equipment  and  stock  in  trade  at 
the  date  of  transfer  forming  a  part  of  the  said  export  businesses 
or  undertakings.  The  factories  of  the  said  respective  parties  em- 
ployed for  export  purposes  shall,  in  the  case  of  the  Imperial  Com- 
pany, include  the  export  factory  of  the  Imperial  Company  formerly 
belonging  to  W.  D.  &  H.  O.  Wills,  Limited,  at  Ashton  Gate,  Bris- 
tol, and  the  land  and  cottages  held  therewith;  the  leasehold  export 
factory  formerly  belonging  to  Messrs.  Lambert  &  Butler,  Limited, 
in  London;  and  the  twTo  export  factories  formerly  belonging  to 
the  Richmond  Cavendish  Company,  Limited,  at  Liverpool;  and 
the  cigarette  factory  of  the  Imperial  Company  formerly  belonging 


International  Agreements  171 

to  W.  D.  &  H.  0.  Wills,  Limited,  at  Sydney,  in  the  Commonwealth 
of  Australia.  The  export  factories  of  the  Ogden  Company  will 
include  the  bonded  or  export  factory  of  the  Ogden  Company  in 
Cornwallis  street,  Liverpool,  and  a  factory  at  Sydney  aforesaid. 
The  export  factories  of  the  American  Company,  the  Continental 
Company,  and  the  Cigar  Company  will  include  such  suitable  fac- 
tories as  shall  be  designated  by  these  companies,  or  some  or  one  of 
them,  so  that  the  price  thereof  with  their  plant  and  equipment  as 
hereinafter  fixed  shall  not  exceed  the  aggregate  price  of  the  fac- 
tories, land,  and  cottages  with  their  plant  and  equipment  to  be 
sold  by  the  Imperial  Company  as  before  stated.  All  the  said  fac- 
tories and  the  plant  and  equipment  used  in  connection  with  the 
same  are  to  be  taken  at  the  value  now  standing  in  the  books  of  the 
respective  vendors  thereof,  and  the  stock  in  trade  and  materials 
hereby  agreed  to  be  sold  are  to  be  taken  at  cost.  The  respective 
values  shall  be  paid  by  the  British- American  Company  to  the 
respective  vendors  in  cash.  As  part  of  the  export  business  and  good 
will  to  be  sold  by  the  Imperial  Company  to  the  British- American 
Company  the  export  business  of  Salmon  &  Gluckstein,  Limited, 
shall  be  included,  and  the  Imperial  Company  hereby  undertakes 
to  procure  the  transfer  of  the  same  to  the  British-American  Com- 
pany, but  this  shall  not  be  deemed  to  include  any  lands,  buildings, 
or  hereditaments.  The  said  export  business  shall  also  include  all 
the  interest  of  the  Imperial  Company  in  a  factory  at  Shanghai 
recently  purchased  by  it  and  or  in  the  American  Cigarette  Com- 
pany of  Shanghai. 

5.  The  British- American  Company  shall  be  entitled  to  purchase 
at  not  exceeding  cost  thereof  to  its  vendor  any  export  business 
hereafter  acquired  by  any  of  the  parties  hereto  of  the  first  six  parts, 
as  well  as  any  shares  in  any  companies  incorporated  in  countries 
foreign  to  the  United  Kingdom  and  the  United  States  acquired 
by  any  of  said  parties,  and  the  export  business  and  the  assets  em- 
ployed in  such  business  of  any  company  the  control  of  which  shall 
be  hereafter  acquired  by  any  of  said  parties,  as  well  as  any  shares 
in  companies  engaged  in  export  business  which  may  be  held  by 
such  controlled  companies  acquired  by  any  of  the  parties  of  the 
first  six  parts  as  aforesaid. 

6.  The  British- American  Company  shall  have  the  right  to  use 
in  its  export  business,  as  hereinbefore  defined,  any  brands  and 
trade-marks  now  owned  or  hereafter  acquired  or  adopted  by  any 
of  the  parties  hereto  of  the  first  six  parts. 


172  Industrial  Combinations  and  Trusts 

7.  The  sale  and  purchase  of  the  said  export  business  hereinbe- 
fore agreed  to  be  made  are  subject  to  and  with  the  benefit  of  all 
contracts  heretofore  made  by  the  respective  parties  hereto  of  the 
first  six  parts,  with  their  agents  or  other  persons  interested  in  the 
said  businesses  so  far  as  such  contracts  are  now  in  force,  save  and 
except  that  if  the  Imperial  Company  is  under  an  obligation  to 
buy  the  shares  of  G.  F.  Todman  in  W.  D.  &  H.  O.  Wills  (Australia), 
Limited,  at  any  price  not  approved  by  the  British- American  Com- 
pany, such  obligation  is  not  agreed  to  be  undertaken  by  that  com- 
pany. The  Japanese  stockholders  in  Murai  Bros.  Company, 
Limited,  shall  have  the  right  to  take  from  the  British-American 
Company  on  or  before  January  1,  1904,  by  paying  par  therefor, 
with  interest  thereon  at  the  rate  of  six  per  cent  per  annum  (less 
any  dividends  received)  from  the  date  of  their  purchase  by  the 
American  Company  until  payment,  all  issued  stock  sold  by  the 
American  Company  to  the  British- American  Company  in  excess 
of  sixty  per  cent  of  the  total  capital  stock  of  Murai  Bros.  Company, 
Limited. 

8.  The  dividends  or  proportion  of  dividends  upon  shares  hereby 
agreed  to  be  sold  and  the  profits  of  each  export  business  hereby 
agreed  to  be  sold  shall,  up  to  the  respective  transfer  days,  belong 
to  the  respective  vendors  of  the  same. 

9.  The  parties  of  the  first  five  parts  shall,  respectively,  clear  the 
lands,  buildings,  and  hereditaments  hereby  agreed  to  be  sold  of 
all  mortgages,  charges,  and  other  incumbrances,  and  shall  be  en- 
titled to  the  proceeds  of  all  book  debts  due  to  the  said  parties, 
respectively,  on  the  respective  transfer  days,  but  for  a  period  of  three 
calendar  months  thereafter  the  British- American  Company  shall  be 
authorized  on  behalf  of  these  respective  parties  to  collect  and  re- 
ceive such  book  debts,  and  the  proceeds  shall  be  from  time  to  time 
paid  over  to  the  parties  entitled  thereto  at  the  end  of  every 
month. 

10.  The  British- American  Company  shall  undertake  the  ob- 
servance and  performance  of  all  covenants  and  conditions  on  the 
part  of  the  lessee  or  tenant  in  any  lease  of  or  agreement  relating 
to  the  lands,  buildings,  and  hereditaments  hereby  agreed  to  be 
sold,  and  thenceforth  on  the  part  of  the  lessee  or  tenant  to  be  ob- 
served and  performed,  and  the  British-American  Company  shall 
also,  as  from  the  same  date,  undertake  the  performance  of  all  con- 
tracts bona  fide  entered  into  by  the  parties  of  the  first  five  parts 
in  the  ordinary  course  of  carrying  on  their  export  business  and 


International  Agreements 


i73 


particularly  applicable  thereto,  and  shall  indemnify  the  parties 
of  the  first  five  parts  against  all  proceedings,  claims,  and  demands 
in  respect  thereof. 

11.  All  books  of  account  of  the  parties  of  the  first  and  second 
parts  referring  solely  to  the  export  businesses  hereby  agreed  to  be 
sold,  and  all  books  of  reference  to  customers  and  other  books  and 
documents  of  the  said  parties  relating  solely  to  the  said  export  busi- 
nesses (except  the  statutory  and  minute  books,  and  any  other  books 
of  a  private  nature)  shall  be  delivered  to  the  British-American  Com- 
pany upon  completion  of  the  purchase,  and  the  British- American 
Company  shall  thenceforth  be  entitled  to  the  custody  thereof  and 
to  the  use  thereof  for  the  purpose  of  carrying  on  its  business,  but, 
nevertheless,  the  parties  of  the  first  and  second  parts  shall  have  free 
access  at  all  reasonable  times  to  the  said  books  and  documents, 
or  any  of  them,  for  any  reasonable  purpose,  and  to  the  temporary 
use  of  the  same  for  the  purpose  of  any  legal  proceedings.  The 
parties  of  the  third,  fourth,  and  fifth  parts  shall  deliver  to  the 
British-American  Company  a  list  of  their  respective  customers 
for  the  export  businesses  hereby  sold  and  any  books  used  exclusively 
in  connection  with  such  business. 

12.  The  British- American  Company  shall  from  the  time  of  any 
property  being  at  its  risk  be  entitled  to  the  benefit  of  all  current 
insurances,  and  the  parties  of  the  first  five  parts  shall  be  entitled 
to  repayment  of  a  proportionate  part  of  the  premiums  already  paid 
for  the  unexpired  portion  of  the  current  year  of  any  policy,  and  all 
periodical  payments  shall  be  apportioned  as  from  the  respective 
transfer  days  hereinbefore  mentioned. 

13.  The  purchases  shall  be  completed  on  or  before  the  1st  day 
of  January,  1903,  in  London,  and  the  consideration  for  the  same 
shall  be  paid  or  satisfied  subject  to  the  provisions  of  this  agreement 
and  thereupon  and  from  time  to  time  the  parties  of  the  first  five 
parts  shall  execute  and  do  all  such  assurances  and  things  for  vesting 
the  said  premises  in  the  British- American  Company  and  giving  to 
it  the  full  benefit  of  this  agreement  as  shall  be  reasonably  required. 

14.  As  regards  any  of  the  premises  subject  to  mortgages  which 
can  not  be  paid  off  until  after  the  time  of  completion,  the  parties 
of  the  first  five  parts  shall,  if  so  desired  by  the  British- American 
Company,  convey  the  said  premises  subject  to  the  mortgages  affect- 
ing the  same,  respectively,  and  the  British-American  Company 
shall  retain  out  of  the  consideration  aforesaid  a  sum  sufficient  to 
pay  off  and  satisfy  the  claims  under  such  mortgage. 


174  Industrial  Combinations  and  Trusts 

15.  In  any  and  every  case  where  any  leaseholds  hereby  agreed 
to  be  sold,  are  only  assignable  with  the  consent  of  the  landlords 
from  whom  the  same  respectively  are  held,  the  parties  of  the  first 
five  parts,  or  such  of  them  as  hold  such  leaseholds,  shall  use  their 
best  endeavors  to  obtain  the  requisite  consent  for  the  assignment 
to  the  British- American  Company,  and  in  any  case  where  such 
consent  can  not  be  conveniently  obtained  the  parties  of  the  first 
five  parts  or  such  of  them  as  hold  such  leaseholds  as  aforesaid  shall 
execute  a  declaration  of  trust  in  favor  of  the  British-American 
Company,  or  otherwise  deal  with  the  same  as  the  British-American 
Company  shall  direct. 

16.  The  possession  of  the  property  hereby  agreed  to  be  sold  by 
the  Ogden  Company  shall  be  delivered  to  the  British- American 
Company  on  the  Ogden  transfer  day,  and  the  possession  of  the 
properties  hereby  agreed  to  be  sold  by  the  parties  hereto  of  the 
first,  third,  fourth,  and  fifth  parts  shall,  subject  as  hereinafter 
mentioned,  be  delivered  to  the  British- American  Company  on  the 
Imperial  and  American  transfer  day,  but  if  the  said  parties  of  the 
third,  fourth,  and  fifth  parts  shall  not  be  able  to  deliver  possession 
on  the  last-mentioned  transfer  day,  the  said  parties  shall  from  such 
day  until  delivery  of  possession  carry  on  and  conduct  their  export 
business  for  the  benefit  of  the  British- American  Company,  and 
shall  account  to  that  company  for  all  the  profits  arising  therefrom, 
but  the  British- American  Company  shall  pay  interest  at  the  rate 
of  five  per  cent  per  annum  on  the  purchase  money  from  the  transfer 
day  until  actual  payment. 

17.  For  the  purposes  of  title  of  the  lands,  buildings,  and  heredit- 
aments hereby  agreed  to  be  sold  by  the  parties  of  the  first  and 
second  parts,  they  shall,  respectively,  be  deemed  and  taken  to  have 
entered  into  this  contract  with  the  British- American  Company  sub- 
ject to  the  terms  and  stipulations  of  the  Liverpool  public  sale  condi- 
tions so  far  as  the  same  shall  be  applicable  to  a  sale  byprivate  treaty. 

18.  Each  of  the  parties  hereto  of  the  first  six  parts  hereby  agrees 
and  shall  covenant  with  the  British- American  Company  that  the 
said  covenanting  party  will  not  at  any  time  after  its  transfer  day, 
either  solely  or  jointly  with  any  other  person,  company,  or  firm, 
directly  or  indirectly,  carry  on  or  be  employed,  engaged,  or  con- 
cerned or  interested  in  export  business  as  denned  in  this  agree- 
ment, except  as  it  may  be  interested  as  a  member  of  the  British- 
American  Company  or  of  a  company  formed  or  to  be  formed  with 
the  concurrence  of  the  British-American  Company,  and  also  except 


International  Agreements  175 

so  far  as  the  parties  of  the  third,  fourth,  fifth,  and  sixth  parts  may 
be  interested  as  members  of  companies  or  firms  engaged  in  export- 
ing cigars  and  cigarettes  from  Cuba,  Porto  Rico,  the  Hawaiian 
Islands,  and  or  the  Philippine  Islands,  and  the  British  American 
Company  hereby  agrees  and  shall  covenant  with  each  of  the  parties 
hereto  of  the  first  six  parts  that  the  British-American  Company 
will  not  at  any  time  hereafter,  either  solely  or  jointly  with  any 
other  person,  firm,  or  company,  directly  or  indirectly,  carry  on  or 
be  employed,  engaged,  concerned,  or  interested  in  the  business  of 
a  tobacco  manufacturer  or  in  any  dealing  in  tobacco  or  its  products 
except  in  the  manner  and  within  the  limits  contemplated  and 
authorized  by  this  agreement. 

19.  The  British- American  Company  will,  if  and  so  long  as  there- 
unto required  by  the  Imperial  Company,  manufacture  in  the  United 
Kingdom  such  brands  as  the  Imperial  Company  shall  require  for 
sale  in  the  United  Kingdom  and  for  export  to  the  United  States, 
to  be  manufactured  in  bond,  and  the  Imperial  Company  shall  pay 
for  tobacco  manufactured  pursuant  to  this  clause  the  cost  of  raan- 
facturing  and  packing,  with  an  addition  of  10  per  cent  upon  such 
cost,  and  the  Imperial  Company  shall  also  pay  the  duty. 

20.  This  agreement  is  to  be  construed  and  take  effect  as  a  con- 
tract made  in  England  and  in  accordance  with  the  law  of  England ; 
but  to  the  intent  that  any  of  the  parties  may  sue  in  its  own  country, 
the  Imperial  Company  is  always  to  have  an  agent  for  service  in 
the  United  States,  and  each  of  them,  the  American  Company,  the 
Continental  Company,  the  Cigar  Company,  and  the  Consolidated 
Company,  is  always  to  have  an  agent  for  service  in  England,  and 
service  on  any  such  agent  of  any  notice,  summons,  order,  judg- 
ment, or  other  process  or  document  in  respect  of  this  agreement, 
or  any  matter  arising  thereout,  shall  be  deemed  to  be  good  service 
on  the  party  appointing  such  agent;  and  as  regards  each  of  the 
said  parties  whilst  and  whenever  there  is  no  other  agent  the  fol- 
lowing shall  be  considered  to  be  the  agents  of  the  respective  parties 
duly  appointed  under  this  clause,  namely:  For  the  Imperial  Com- 
pany, Samuel  Untermeyer,  of  New  York  City,  American  counsel, 
and  for  the  American  Company,  the  Continental  Company,  the 
Cigar  Company,  and  the  Consolidated  Company,  Joseph  Hood, 
41  Castle  Street,  Liverpool,  solicitor.  Notice  of  any  appointment 
under  this  clause  shall  be  from  time  to  time  given  by  the  ap- 
pointer  to  the  other  parties  hereto.  The  mode  of  service  sanc- 
tioned by  this  clause  is  not  in  any  way  to  prejudice  or  preclude 


176  Industrial  Combinations  and  Trusts 

any  mode  of  service  which  would  be  allowable  if  this  clause  were 
omitted. 

21.  The  validity  of  this  agreement  is  not  to  be  impeached  on  the 
ground  that  the  vendors,  as  promoters  or  otherwise,  stand  in  a 
fiduciary  relationship  to  the  British- American  Company,  and  that 
the  directors  thereof  being  interested  in  the  vendors'  businesses  do 
not  constitute  an  independent  board.  Upon  the  adoption  hereof 
by  the  British-American  Company  in  such  a  manner  as  to  render 
the  same  binding  on  that  company  in  favour  of  the  vendors,  the 
said  Williamson  Whitehead  Fuller  and  James  Inskip  shall  be  dis- 
charged from  all  liability  hereunder. 

22.  The  cost  of  and  incidental  to  the  formation  and  registration 
of  the  British-American  Company  shall  be  borne  by  that  company. 

In  witness  whereof  the  said  parties  of  the  first,  second,  and  third 
parts  have  hereunto  affixed  their  common  seals,  and  the  said  parties 
of  the  fourth,  fifth  and  sixth  parts  have  executed  this  agreement 
under  the  hand  of  their  respective  presidents,  and  the  parties  of 
the  seventh  part  have  hereunto  subscribed  their  names  the  day  and 
year  first  before  written. 

(Signatures.) 

Exhibit  3 
international  agreement  in  the  explosives  trade  ! 

Agreement  made  this  26th  day  of  October,  1897,  between: 

Messrs.  E.  I.  Du  Pont  de  Nemours  &  Co.,  of  Wilmington,  Del.; 

Laflin  and  Rand  Powder  Company,  of  New  York  City; 

Eastern  Dynamite  Company,  of  Wilmington,  Del. ; 

The  Miami  Powder  Company,  of  Xenia,  Ohio; 

The  American  Powder  Mills,  of  Boston,  Mass.; 

The  Aetna  Powder  Company,  of  Chicago,  111.; 

The  Austin  Powder  Company,  of  Cleveland,  Ohio; 

The  California  Powder  Works,  of  San  Francisco,  Cal.; 

The  Giant  Powder  Company,  Consolidated,  of  San  Francisco, 
Cal.; 

The  Judson  Dynamite  and  Powder  Company,  of  San  Fran- 
cisco, Cal.; 
(hereinafter  collectively  referred  to  as  "the  American  Factories") 
of  the  one  part,  and 

1  United  Stales  of  America  v.  E.  I.  du  Pont  de  Nemours  &  Co.  Government's 
Exhibit  No.  119,  Pet.  Rec.  Exhibits,  Vol.  11,  pp.  11 23  ff. 


International  Agreements  177 

The  Vereinigte  Koln-Rottweiler  Pulverfabriken,  of 
Cologne; 

The  Nobel-Dynamite  Trust  Company,  Limited,  of  London ; 
(hereinafter  collectively  referred  to  as  "the  European  Factories") 
of  the  other  part. 

Whereas  the  parties  hereto  own  or  control  a  large  number  of 
companies  and  works  engaged  in  the  manufacture  and  trade  of 
explosives,  and  whereas  it  has  been  deemed  advisable  to  make 
arrangements,  so  as  to  avoid  anything  being  done  which  would 
affect  injuriously  the  common  interest. 

It  Has  Therefore  been  Agreed  as  Follows: 

1.  The  word  "Explosives"  in  this  Agreement  is  to  be  under- 
stood as  including  detonators,  black  powder,  smokeless  sporting 
powder,  smokeless  military  powder,  and  high  explosives  of  all  kinds. 

2.  A  list  of  all  the  companies  and  factories  controlled  by  the 
American  Factories  directly  or  indirectly  is  to  be  prepared  and 
handed  by  Messrs  E.  I.  Du  Pont  de  Nemours  &  Co.,  in  duplicate 
to  the  European  Factories  at  the  time  of  the  execution  of  this 
agreement,  and  the  European  Factories  are  to  hand  to  Messrs. 
E.  I.  Du  Pont  de  Nemours  &  Co.  a  complete  list  of  the  Companies 
controlled  by  them  directly  or  indirectly  when  executing  this  Agree- 
ment. Should  the  period  of  control  which  any  of  the  parties  have 
over  any  company  or  factory  be  fixed  by  contract  for  a  shorter 
time  than  the  duration  of  this  present  Agreement,  that  fact  shall 
be  stated  on  such  list,  and  it  is  understood  that  in  the  event  of 
any  renewal  of  such  arrangement  in  such  a  manner  as  to  extend 
the  control  over  the  period  of  the  present  Agreement,  the  Com- 
panies in  question  shall  be  bound  to  adhere  to  the  terms  hereof. 

The  American  Factories  and  the  European  Factories  shall  be 
bound  to  stipulate  adherence  to  the  present  Agreement  on  the 
part  of  all  and  any  Companies  or  Factories  over  which  they  now 
have  control  or  may  directly  or  indirectly  obtain  control  during 
the  continuance  of  this  Agreement. 

3.  Regarding  Detonators  it  is  agreed  that  the  European  Fac- 
tories shall  abstain  from  erecting  detonator  works  in  the  United 
States  of  North  America.  The  works  which  are  building  at  James- 
burg,  New  Jersey,  are  not  to  be  completed,  and  the  whole  scheme 
as  worked  out  by  Mr.  Miiller  is  to  be  abandoned.  In  consideration 
of  this  scheme  being  abandoned  and  the  erection  of  the  works  being 


178  Industrial  Combinations  and  Trusts 

stopped,  the  American  Factories  undertake  to  bear  all  expenses 
hitherto  incurred  in  connection  therewith,  and  they  will,  more- 
over, discharge  the  obligations  which  Mr.  Muller  has  undertaken 
in  connection  with  the  above-mentioned  scheme,  with  regard  to 
which  obligations  a  special  subsidiary  Agreement  is  to  be  made. 
And  it  is  moreover  agreed  that  the  American  Factories  shall  order 
and  take  from  the  European  Factories,  i.  e.,  from  The  Rhenish 
Westphalian  Sprengstoff  A.  G.  every  year  5,000,000  Detonators 
at  the  following  prices,  viz.: — M.  11  for  No.  3,  M.  12  for  No.  3  rim, 
M.  13  for  No.  4,  M.  15.50  for  No.  5,  M.  16.50  for  No.  5  rim,  M.  20 
for  No.  6,  and  M.  21  for  No.  6  rim,  all  these  prices  to  be  understood 
per  1,000  ex  ship  New  York  without  duty. 

4.  As  regards  Black  Powder  the  American  Factories  bind  them- 
selves not  to  erect  factories  in  Europe,  and  the  European  Factories 
bind  themselves  not  to  erect  factories  in  the  United  States  of 
America.  Both  parties,  however,  are  to  be  free  to  import  into  the 
other  party's  territory. 

5.  As  regards  Smokeless  Sporting  Powder  the  American  Fac- 
tories undertake  not  to  erect  factories  in  Europe,  and  the  European 
Factories  undertake  not  to  erect  factories  in  the  United  States  of 
America;  both  parties,  however,  are  to  be  free  to  import  into  the 
other  party's  territory. 

6.  With  regard  to  Smokeless  Military  Powder  it  is  hereby  agreed 
that  the  European  Factories  undertake  not  to  erect  any  factory 
in  the  United  States  of  America,  and  that  the  American  Factories 
undertake  not  to  erect  any  factories  in  Europe. 

Whenever  the  American  Factories  receive  an  enquiry  for  any 
Government  other  than  their  own,  either  directly  or  indirectly, 
they  are  to  communicate  with  the  European  Factories  through  the 
Chairman  appointed,  as  hereinafter  set  forth,  and  by  that  means 
to  ascertain  the  price  at  which  the  European  Factories  are  quoting 
or  have  fixed,  and  they  shall  be  bound  not  to  quote  or  sell  at  any 
lower  figure  than  the  price  at  which  the  European  Factories  are 
quoting  or  have  fixed.  Should  the  European  Factories  receive 
an  enquiry  from  the  Government  of  the  United  States  of  North 
America,  or  decide  to  quote  for  delivery  for  that  Government,  either 
directly  or  indirectly,  they  shall  first  in  the  like  manner  ascertain 
the  price  quoted  or  fixed  by  the  American  Factories  and  shall  be 
bound  not  to  quote  or  sell  below  that  figure. 

7.  With  regard  to  High  Explosives  (by  which  all  explosives  fired 
by  means  of  Detonators  are  to  be  understood),  it  is  agreed  that 


International  Agreements  179 

the  United  States  of  North  America,  with  their  present  or  future 
territories,  Possessions,  Colonics,  or  Dependencies,  the  Republics 
of  Mexico,  Guatemala,  Honduras,  Nicaragua,  and  Costa  Rica, 
as  well  as  the  Republics  of  the  United  States  of  Columbia  and 
Venezuela,  are  to  be  deemed  the  exclusive  territory  of  the  American 
Factories,  and  are  hereafter  referred  to  as  "American  Territory." 
All  the  countries  in  South  America  not  above  mentioned,  as  well 
as  British  Honduras  and  the  Islands  in  the  Caribbean  Sea,  which 
are  not  Spanish  possessions,  are  to  be  deemed  common  territory, 
hereinafter  referred  to  as  "Syndicated  Territory";  the  rest  of  the 
world  is  to  be  exclusive  territory  of  the  European  Factories,  here- 
inafter referred  to  as  "European  Territory."  The  Dominion  of 
Canada  and  the  Islands  appertaining  thereto,  as  well  as  the  Spanish 
possessions  in  the  Caribbean  Sea,  are  to  be  a  free  market  unaffected 
by  this  Agreement. 

8.  The  American  Factories  are  to  abstain  from  manufacturing, 
selling,  or  quoting,  directly  or  indirectly,  in  or  for  consumption 
in  any  of  the  countries  of  the  European  Territory,  and  the  Euro- 
pean are  to  abstain  in  like  manner  from  manufacturing,  selling  or 
quoting,  directly  or  indirectly,  in  or  for  consumption  in  any  of  the 
countries  of  the  American  Territory.  With  regard  to  the  Syndi- 
cated Territory  neither  party  are  to  erect  works  there,  except  by 
a  mutual  understanding,  and  the  trade  there  is  to  be  carried  on  for 
joint  account  in  the  manner  hereinafter  defined. 

9.  The  American  Factories  shall  forthwith  designate  in  writing 
a  Chairman  and  Vice-Chairman,  who  shall  hold  office  as  such  until 
their  respective  successors  shall  be  appointed  by  the  party  of  the 
first  part,  and  such  Chairman,  or  in  his  absence  such  Vice- Chairman, 
shall  be  the  authorized  representative  of  the  American  Factories, 
to  whom  and  through  whom  all  communications,  acts,  and  trans- 
actions in  respect  of  this  Agreement,  unless  otherwise  stipulated, 
shall  be  had;  and  the  European  Factories  shall  likewise  forthwith 
designate  in  writing  a  Chairman  and  Vice-Chairman,  to  whom 
shall  be  referred  all  matters  which  by  terms  of  this  contract  are 
made  referrable  *  to  the  Chairman  representing  the  European  Fac- 
tories. The  said  Chairman  or  Vice-Chairman  shall  jointly  establish 
rules  for  the  carrying  out  of  the  Syndicate  arrangements  hereinafter 
referred  to. 

10.  The  Chairmen  shall  from  time  to  time  mutually  agree  upon 
a  basis  price  for  each  market  in  the  Syndicated  Territory,  such 

1  Thus  in  original. — Ed. 


i8o  Industrial  Combinations  and  Trusts 

basis  price  to  include  cost  of  manufacture,  freight,  insurance,  land- 
ing charges,  magazine  charges,  and  all  other  charges  until  delivery, 
including  agency  commission  and  the  contribution  towards  the 
Common  Fund  hereinafter  stipulated. 

The  Chairmen  shall  likewise  fix  a  selling  price  for  each  market, 
which  is  to  be  deemed  a  convention  price,  below  which  no  sales  are 
to  effected,  and  the  difference  between  the  basis  price  and  the  sell- 
ing price  is  to  be  deemed  the  Syndicate  profit,  and  to  be  divided  in 
equal  shares  between  the  American  Factories  and  the  European 
Factories. 

Losses  due  to  bad  debts  are  to  be  borne  by  the  parties  effecting 
the  sale. 

n.  A  common  Syndicate  Fund  is  to  be  constituted  by  a  pay- 
ment of  $i  per  case  of  75  per  cent,  dynamite,  or  per  case  of  gelig- 
nite, gelatine  dynamite,  or  blasting  gelatine,  and  a  payment  of 
such  portion  of  $1  as  the  percentage  of  nitro-glycerine  on  lower 
grade  dynamites  bears  to  75  per  cent,  until  such  Fund  reaches  the 
amount  of  $50,000,  when  the  contribution  is  to  be  reduced  to  one- 
half  the  above-mentioned  rates. 

12.  The  Syndicate  accounts,  according  to  Clause  10,  made  up  to 
31st  December  in  each  calendar  year  are  to  be  handed  in  by  both 
parties  so  as  to  reach  the  Chairman  of  the  other  party  by  the  15  th 
March  next  ensuing,  and  the  payments  for  the  balance  are  to  be 
made  by  the  30th  June  following,  when  the  amount  to  be  contrib- 
uted to  the  Common  Fund  shall  likewise  be  paid. 

[In  regard  to  Clause  1 2  of  the  Agreement,  I  have  no  objections  at 
all  to  the  extension  of  time  whereat  the  accounts  are  to  reach  both 
parties;  namely,  to  April  15th.  of  each  year,  instead  of  March  15th. 
as  per  Clause  12. — Letter  April  n,  1899.] 

The  Common  Fund  shall,  as  the  Chairmen  may  decide,  be  in- 
vested in  Government  Securities,  and  it  is  from  this  Fund  that  any 
fine  or  fines  hereinafter  stipulated,  not  recovered  from  the  parties, 
shall  be  taken.  It  shall  likewise  be  admissible  for  the  Chairmen  to 
dispose  of  two-thirds  of  the  Common  Fund  for  the  purpose  of  pro- 
tecting the  common  interest  against  outside  competition. 

13.  Any  breach  of  this  agreement  shall  be  adjudicated  upon  by 
the  Chairmen,  and  if  they  cannot  agree  they  shall  appoint  an 
umpire.  For  the  guidance  of  the  Chairmen  and  umpire  it  is  agreed 
that,  should  either  of  the  parties  erect  factories  in  a  country  re- 
served to  the  other,  the  liquidated  damages  shall  not  be  fixed  lower 
than  £10,000. 


International  Agreements  181 

Should  either  party  trade  in  the  territory  of  the  other  it  shall  be 
admissible  for  the  Chairmen  to  absolve  them  of  any  accidental 
breach,  but  if  an  intentional  breach  shall  be  proved,  the  fine  shall 
be  the  invoice  value  of  the  goods  supplied.  No  restriction  is  placed 
on  the  decision  of  the  Chairmen  as  to  the  penalty  to  be  imposed  for 
intentional  underselling  in  one  of  the  markets  of  the  Syndicate 
territory. 

14.  It  is  intended  that  in  the  Syndicate  markets  the  arrangement 
should  resemble  as  far  as  possible  the  convention  arrangements 
hitherto  had  by  the  Europeans,  where  the  Agents  meet  from  time 
to  time,  and  come  to  decisions  within  the  limits  of  powers  given  to 
them,  or  where  they  meet  in  order  to  make  recommendations  to 
their  principals. 

15.  The  Chairmen  both  agreeing  have  full  powers  to  vary  the 
Syndicate  arrangements  as  they  may  deem  expedient  from  time  to 
time  in  order  to  meet  outside  competition  and  to  regulate  business 
for  the  best  in  the  interest  of  the  parties  concerned,  and  they  shall 
likewise  have  the  power  under  exceptional  circumstances  of  author- 
ising sales  in  the  prohibited  territories. 

16.  With  regard  to  the  markets  in  the  European  territory  in 
which  the  American  Factories  have  already  done  business,  and  from 
which,  in  accordance  with  the  stipulations  of  this  Agreement,  they 
are  to  retire,  as  well  as  the  markets  of  the  American  territory  in 
which  the  European  Factories  have  already  done  business,  and  from 
which  they  are,  according  to  the  stipulations  of  this  Agreement,  to 
retire,  the  following  is  agreed: 

Agents  are  as  far  as  possible  to  be  retained  by  the  party  who  is 
henceforward  to  do  the  business  in  the  market  in  question. 

Magazines  are  in  a  like  manner  to  be  taken  over  at  their  present 
value  to  be  determined  by  mutual  agreement  or  arbitration. 

Stocks,  if  in  good  merchantable  condition,  are  to  be  taken  over  at 
full  cost,  i.  e.,  the  amount  which  the  goods  at  present  cost  with 
accumulated  charges. 

17.  Nothing  herein  contained  shall  be  construed  to  prevent  either 
of  the  parties  hereto  from  carrying  out  any  contracts  for  the  sale  of 
their  products  which  have  been  entered  into  in  good  faith  prior  to 
the  15th  of  July,  1897.  Contracts  made  after  the  said  date  shall  be 
transferred  to  the  party  by  whom  the  business  shall  be  transferred 
to  the  party  by  whom  the  business  shall  henceforth  be  done  in  the 
market  in  question. 

18.  This  Agreement  is  to  be  in  force  for  10  years,  beginning  from 


182  Industrial  Combinations  and  Trusts 

the  15th  of  July,  1897,  subject  to  written  notice  being  given  six 
months  prior  to  the  15th  July,  1907.  In  the  absence  of  notice  this 
Agreement  is  to  continue  thereafter  from  year  to  year  until  such  six 
months'  notice  of  intended  termination  is  given. 

19.  Should  any  difference  or  dispute  arise  between  the  parties 
hereto,  touching  this  Agreement,  or  any  clause,  matter,  or  thing 
relating  thereto,  or  as  to  the  rights,  duties,  or  liabilities  of  any  of  the 
parties  hereto,  the  same  shall  be  referred  to  the  Chairmen,  who  shall 
arbitrate  thereon,  and  their  award  shall  be  final.  Should  they  not 
agree  they  shall  appoint  an  Umpire  whose  award  shall  be  final.  In 
all  cases  in  which  the  Chairmen  disagreeing  select  an  Umpire,  the 
following  provisions  shall  apply: — 

If  the  question  or  matter  to  be  decided  is  brought  forward  by  one 
of  the  parties  of  the  first  part,  the  Umpire  shall  be  a  European. 
If  on  the  contrary,  the  question  or  matter  to  be  decided  is  brought 
forward  by  one  of  the  parties  of  the  second  part,  the  Umpire  shall  be 
an  American. 

20.  With  regard  to  Patents  which  the  American  Factories  or  the 
European  Factories  may  possess  in  each  others'  territories,  it  is 
understood  that  unless  compelled  by  agreement  with  inventors  to 
take  legal  proceedings  with  regard  to  alleged  infringements,  no 
legal  proceedings  are  to  be  taken  in  respect  of  any  alleged  infringe- 
ment until  an  attempt  has  been  made  to  settle  the  matter  amicably. 
In  order  to  bring  about  such  amicable  understanding  the  question 
is  first  to  be  ventilated  by  correspondence  between  the  Chairmen, 
who  shall  have  power  to  constitute  themselves  an  arbitral  tribunal, 
obtaining  evidence  from  experts  on  both  sides ;  and  should  they  hold 
that  an  infringement  has  been  committed  they  shall  fix  the  rate  of 
royalty  to  be  paid.  Should  they  not  agree,  they  shall  call  on  par- 
ties to  sign  a  deed  of  submission,  authorising  them  to  appoint  an  um- 
pire, whose  award  shall  be  final. 

Inasmuch  as  the  parties  have  undertaken  not  to  manufacture 
in  each  others'  territories  they  are  not  to  purchase  any  Patent  for 
each  others'  territories,  except  after  having  given  the  party  inter- 
ested in  the  manufacture  in  the  country  in  question  the  right  of 
pre-emption  on  the  same  terms  as  the  Patent  is  offered  to  them. 

Transitory 

This  Agreement  is  made  subject  to  ratification  by  the  31st  Au- 
gust, 1897.    Mr.  Eugene  Du  Pont,  Mr.  Bernard  Peyton,  Mr.  Addi- 


International  Agreements  183 

son  Fay,  and  Mr.  Hamilton  Barksdale  have  undertaken  to  recom- 
mend and  advocate  such  ratification  by  the  American  Factories, 
which  is  to  be  notified  to  Mr.  E.  Kraftmeier,  of  55,  Charing  Cross, 
London,  S.  W.  (Telegraphic  Address —  "Kraftmeier,  London,")  so 
as  to  be  in  his  possession  by  the  31st  August,  1897,  and  Mr.  Thomas 
Reid,  Mr.  J.  N.  Heidemann,  Mr.  Max  A.  Philipp,  and  Mr.  E. 
Kraftmeier  will  recommend  and  advocate  such  ratification  by  the 
European  Factories,  which  is  to  be  notified  to  Mr.  Eugene  Du  Pont 
so  as  to  be  in  his  possession  by  the  31st  August,  1897. 

Exhibit  4 

aluminum  company  of  america  * 
THE  A.  J.  A.  G.  AGREEMENT  OF  SEPTEMBER  25,  1908 

About  September  25,  1908,  the  defendant  Aluminum  Company 
of  America,  acting  through  the  Northern  Aluminum  Company,  of 
Canada,  which  is  entirely  owned  and  controlled  by  defendant,  en- 
tered into  an  agreement  with  the  so-called  Swiss  or  Neuhausen 
Company,  of  Europe,  which  is  the  largest  of  the  European  com- 
panies engaged  in  the  aluminum  industry  and  designated  in  this 
agreement  as  "A.  J.  A.  G.,"  parts  thereof  material  to  this  action 
being  as  follows: 

2.  The  N.  A.  Co.  agree  not  to  knowingly  sell  aluminum,  directly 
or  indirectly,  in  the  European  market. 

The  A.  J.  A.  G.  agree  not  to  knowingly  sell  aluminum,  directly 
or  indirectly,  in  the  American  market  (defined  as  North  and  South 
America,  with  the  exception  of  the  United  States,  but  including 
West  Indies,  Hawaiian  and  Philippine  Islands). 

4.  The  total  deliveries  to  be  made  by  the  two  companies  shall  be 
divided  as  follows: 

European  market,  75%  to  A.  J.  A.  G.,  25%  to  N.  A.  Co. 
American  market,  25%  to  A.  J.  A.  G.,  75%  to  N.  A.  Co. 
Common  market,  50%  to  A.  J.  A.  G.,  50%  to  N.  A.  Co. 

The  Government  sales  to  Switzerland,  Germany,  and  Austria- 
Hungary  are  understood  to  be  reserved  to  the  A.  J.  A.  G. 

1  United  States  of  America  v.  Aluminum  Company  of  America.  Petition  in 
Equity,  In  the  District  Court  of  the  United  States  for  the  Western  District  of 
Pennsylvania,  pp.  15-16. 


184  Industrial  Combinations  and  Trusts 

The  Sales  in  the  U.  S.  A.  are  understood  to  be  reserved  to  the 
Aluminum  Company  of  America. 

Accordingly  the  A.  J.  A.  G.  will  not  knowingly  sell  aluminum, 
directly  or  indirectly,  to  the  U.  S.  A.,  and  the  N.  A.  Co.  will  not 
knowingly  sell,  directly  or  indirectly,  to  the  Swiss,  German,  and 
Austria-Hungarian  Governments. 

5.  The  N.  A.  Co.  engages  that  the  Aluminum  Company  of  Amer- 
ica will  respect  the  prohibitions  hereby  laid  upon  the  N.  A.  Co. 

Said  agreement  became  effective  October  1,  1908,  and  provided 
that  it  should  "last  until  terminated  by  a  six  months'  written  no- 
tice," and  petitioner  avers  that  said  agreement  became  effective 
and  has  been  continuously  since  said  date,  and  is  now,  in  full  force 
and  effect,  unless  terminated  by  notice. 


CHAPTER  IX 

POOLS  AND  ASSOCIATIONS 

NOTE 

As  indicated  in  the  note  to  Chapter  I,  the  Pool  has  been  one  of 
the  most  persistent  types  of  combination.  In  spite  of  its  numerous 
disadvantages  and  alleged  weaknesses,  it  has  served  as  a  means 
of  combination  in  far  more  instances  than  has  the  Trust  and  in 
this  respect  may  be  regarded  as  a  close  competitor  of  that  other 
device;  the  Holding  Company.  Pools  may  be  organized  for  a  wide 
variety  of  purposes;  to  divide  territory,  to  raise  prices,  to  pool 
profits,  to  restrict  output,  to  divide  output  and  others,  or,  a  pool 
may  embody  several  of  these  purposes  in  its  programme.  Though 
the  general  structure  of  such  organizations  is  about  the  same  the 
variations  of  type  are  great.  For  that  reason  there  has  been  brought 
together  a  collection  of  pooling  agreements  which  cover  a  wide 
field.  They  are  fairly  typical  illustrations  of  this  organization  and 
are  selected  to  give  as  comprehensive  an  idea  of  this  form  of  combi- 
nation as  possible.  In  the  majority  of  cases  the  object  of  the  pool  is 
sufficiently  stated  in  the  terms  of  the  agreements. — Ed. 

Exhibit  i 
the  steel  rail  pool  1 

Memorandum  of  agreement,  entered  into  August  2,  1887,  by  and 
between  the  North  Chicago  Rolling  Mill  Company,  the  Cambria  Iron 
Company,  the  Pennsylvania  Steel  Company,  the  Union  Steel  Company, 
the  Lackawanna  Iron  and  Coal  Company,  the  Joliet  Steel  Company, 
the  Western  Steel  Company,  the  Cleveland  Rolling  Mill  Company, 
Carnegie  Brothers  &  Co.,  Limited;  Carnegie,  Phipps  &  Co.,  Limited; 
the  Bethlehem  Iron  Company,  the  Scranton  Steel  Company,  the  Troy 
Steel  &  Iron  Company,  the  Worcester  Steel  Works  and  the  Spring- 
field Iron  Company. 

1  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry.  Part  I, 
pp.  69-71. 

185 


1 86  Industrial  Combinations  and  Trusts 

We,  the  before-named  companies  and  corporations,  manufac- 
turers of  steel  rails,  hereby  mutually  agree  one  with  the  other,  that 
we  will  restrict  our  sales  and  the  product  of  steel  rails  of  50  pounds 
to  the  yard  and  upward,  applying  to  orders  taken  by  us  and  to  be 
delivered  by  us  or  from  our  respective  works  during  the  year  1888,  as 
hereinafter  allotted  and  limited;  and  we  respectively  bind  ourselves 
not  to  sell  in  excess  of  our  current  allotments,  without  first  obtain- 
ing the  consent  of  the  Board  of  Control  thereto — that  is  to  say: 

It  is  agreed,  there  shall  now  be  made  an  allotment  of  800,000  tons 
of  rails,  which  shall  be  divided  and  apportioned  to  and  among  the 
several  parties  hereto  to  be  sold  by  them  during  the  year  1888,  upon 
the  following  basis  of  percentages,  to  wit;  North  Chicago  Rolling 
Mill  Company,  12-}^  per  cent;  Pennsylvania  Steel  Company,  g-8Ao 
per  cent;  Bethlehem  Iron  Company  9  per  cent;  Carnegie  Bros.  & 
Co.,  Limited,  and  Carnegie,  Phipps  &  Co.,  Limited  (jointly),  13-^0 
per  cent;  Joliet  Steel  Company,  8  per  cent;  Lackawanna  Iron  and 
Coal  Company,  8  per  cent;  Cambria  Iron  Company  8  per  cent; 
Scranton  Steel  Company,  8  per  cent;  the  Union  Steel  Company, 
8  per  cent;  Cleveland  Rolling  Mill  Company,  4-§io  per  cent;  Troy 
Steel  &  Iron  Company,  4-%o  per  cent;  Western  Steel  Company, 
4"%o  per  cent;  Worcester  Steel  Works,  1-^10  per  cent. 

And  in  addition  to  the  said  allotment  of  800,000  tons  of  rails 
above  allotted,  an  additional  allotment  of  250,000  tons  is  hereby 
made  and  allotted  to  the  Board  of  Control,  to  be  reallotted  and 
reapportioned  by  it,  as  and  to  whom  it  may  deem  equitable,  in  the 
adjustment  of  any  differences  that  may  arise.  It  being  also  further 
agreed  that  all  subsequent  allotments  of  rails  hereafter  made,  to  be 
sold  under  this  agreement  during  the  year  1888,  shall  also  be  di- 
vided and  apportioned  to  the  several  parties  hereto  in  the  same 
ratio  of  percentages  as  said  apportionment  of  800,000  tons  is  herein 
divided  and  apportioned. 

It  is  further  agreed,  that  the  Board  of  Control  shall,  from  time  to 
time,  make  such  further  allotments  as  shall  be  necessary  to  at  all 
times  keep  the  unsold  allotments  at  least  200,000  tons  in  excess  of  the 
total  current  sales,  as  shown  by  the  monthly  reports  of  sales.  This  is 
to  be  in  addition  to  the  then  unappropriated  part  of  the  250,000  tons 
herein  before  alloted  to  the  Board  of  Control  to  adjust  differences. 

It  is  further  agreed,  on  the  first  day  of  April,  July  and  October, 
the  Board  of  Control  are  authorized  and  directed  to  cancel  such 
part  of  the  unmade  allotments  of  the  respective  parties  hereto  as 
they  the  said  Board  of  Control  shall  determine  such  party  unable 


Pools  and  Associations  187 

to  make  in  due  time,  and  all  allotments  so  canceled  the  Board  of 
Control  shall  have  the  right  to  reallot  to  any  of  the  other  parties 
hereto;  it  being  understood  that  all  such  cancellations  shall  apply 
only  to  allotments  standing  to  the  credit  of  the  respective  parties 
hereto  on  the  dates  above  named,  but  no  reallotment  as  aforesaid 
shall  be  made  by  the  Board  of  Control  to  any  of  the  parties  hereto 
for  the  purpose  of  enabling  them,  or  any  of  them,  to  make  and  sell 
rails  from  foreign  made  blooms. 

It  is  further  agreed,  that  all  transfers  of  parts  of  allotments  from 
one  party  to  another  shall  be  made  by  the  Board  of  Control. 

It  is  further  agreed,  that  there  shall  be  a  Board  of  Control,  con- 
sisting of  three  members,  namely  Orrin  W.  Potter,  Luther  S.  Bent 
and  W.  W.  Thurston,  who  shall  have  power  to  employ  a  paid  secre- 
tary and   treasurer. 

It  is  further  agreed,  that  the  Board  of  Control,  upon  the  written 
consent  of  75  per  cent  of  the  percentages  as  hereinbefore  named, 
shall  increase  the  allotments  for  the  year  1888,  and  such  increase 
shall  be  allotted  to  the  parties  hereto  as  hereinbefore  provided. 

It  is  further  agreed,  that  each  party  whose  name  is  hereunto 
annexed,  shall  and  will  make  monthly  returns  to  the  Board  of  Con- 
trol of  all  contracts  for  delivery  of  rails  of  50  pounds  to  the  yard  and 
upward  during  the  year  1888,  and  also  of  all  shipments  of  such  rails 
made  by  them  during  said  year;  a  copy  of  such  return  shall  be  fur- 
nished to  each  party  hereto. 

It  is  further  agreed,  that  all  the  parties  hereto  shall  and  will, 
on  or  before  January  15,  1888,  make  a  written  return  to  the  Board 
of  Control  of  all  the  rails  of  50  pounds  to  the  yard  and  upward 
(designating  the  weight)  which  they  respectively  had  on  hand  Jan- 
uary 1,  1888,  stating  whether  the  same  are  sold,  and  if  sold,  on  what 
order  they  apply. 

It  is  further  agreed,  that  the  Board  of  Control  shall  have  the 
right  whenever  they  deem  it  expedient  to  convene  a  meeting  of  the 
parties  hereto,  and  they  shall  give  at  least  ten  days'  previous  notice 
of  all  meetings,  and  any  business  transacted  at  such  meetings,  and 
receiving  75  per  cent  of  the  votes  present  thereat,  either  in  person 
or  by  proxy,  shall  be  binding  on  all  the  parties  hereto,  excepting  as 
to  a  change  in  percentages  as  aforesaid: 

The  Board  of  Control  shall  be  required  to  call  a  meeting  of  the 
parties  hereto  when  requested  so  to  do  in  writing,  signed  by  any 
three  of  the  contracting  parties,  but  such  request  and  such  notice 
shall  state  the  object  for  which  such  meeting  is  called. 


1 88  Industrial  Combinations  and  Trusts 

It  shall  be  the  duty  of  the  Board  of  Control  to  have  a  proper  rec- 
ord kept  of  all  the  returns  made  to  it,  with  power  from  time  to 
time  to  change  the  form  of  return  as  they  may  deem  expedient. 

The  Board  of  Control  shall  have  authority  to  levy  an  assessment, 
pro  rata  to  the  allotted  tonnage,  to  defray  the  actual  expenses  made 
necessary  to  carry  out  this  agreement. 

It  is  further  agreed,  that  we  will,  respectively,  immediately  make 
return  to  the  Board  of  Control  of  all  rails  of  50  pounds  to  the  yard 
and  upward  which  we  are  now  under  contract  to  deliver  during  the 
year  1888,  said  return  to  state  to  whom  such  rails  are  sold  and  when 
they  are  to  be  delivered. 

(Signatures) 

Exhibit  2 

constitution  and  by-laws  of  the  michigan  retail  lumber 
dealers  association  ! 

The  title  of  this  association  shall  be  the  Michigan  Retail  Lumber 
Dealers'  Association,  and  its  object  is  hereby  set  forth  in  the  fol- 
lowing declaration  of  principles. 

We  seek  to  establish  the  equitable  principle  that  the  retailer 
shall  not  be  subjected  to  competition  with  the  parties  from  whom 
he  buys;  that  a  fair  opportunity  shall  be  offered  the  man  who  in- 
vests his  time  and  money  in  the  retail  business,  and  assumes  the 
risk  which  such  business  inevitably  involves,  to  earn  an  adequate 
remuneration  for  his  labor  and  the  use  of  his  capital.  We  seek  also 
to  promote  that  spirit  of  harmony  in  the  trade  which  shall  prompt 
every  detail  dealer  to  maintain  friendly  relations  with  his  com- 
petitors at  home  and  his  brother  retailers  everywhere. 

Article  I. — Membership. 

ELIGIBILITY. 

Section  i.  Any  person,  firm,  or  corporation  within  the  terri- 
tory of  this  association  who  may  be  regularly  engaged  in  the  lumber 
trade,  carrying  at  all  times  an  assorted  stock  of  lumber,  or  lumber, 
sash,  doors,  etc.,  commensurate  with  the  demands  of  his  com- 

1  United  States  of  America  v.  Edward  E.  Hartwick,  et  al.,  Original  Petition, 
In  the  Circuit  Court  of  the  United  States  for  the  Eastern  District  of  Michigan, 
Southern  Division,  Exhibit  A,  pp.  42-52.  The  Michigan  Retail  Lumber  Dealers 
Association  was  first  organized  about  1888  or  1889. — Ed. 


Pools  and  Associations  189 

munity  (the  equivalent  of  75,000  feet  of  lumber  in  small  cities  and 
country  towns  being  generally  considered  a  minimum  stock  for  a 
retail  lumberyard),  and  who  is  in  the  business  for  the  purpose  of 
selling  lumber  at  retail,  and  who  keeps  an  office  open  during  regular 
business  hours,  with  a  competent  person  in  charge  to  attend  to 
the  wants  of  customers  at  all  times,  shall  be  considered  a  legiti- 
mate lumber  dealer  and  may  be  eligible  to  membership  in  the 
association. 

DOUBT   AS   TO   ELIGIBILITY. 

Sec.  2.  Any  doubt  or  question  arising  as  to  who  may  be  eligible 
to  membership  in  this  association  shall  be  referred  to  the  board  of 
directors  to  determine,  and  their  decision  shall  be  final. 

TERMINATION. 

Sec.  3.  Whenever  any  member  shall  cease  to  keep  a  regular 
assortment  of  lumber,  as  set  forth  in  section  1,  he  shall  cease  to 
be  a  member  of  this  association. 

WITHDRAWAL,   HOW   MADE. 

Sec.  4.  Any  member  whose  duties l  are  paid  in  full  may  with- 
draw from  membership  by  giving  notice  to  the  secretary  in  writing 
and  surrendering  his  certificate  of  membership,  but  memberships 
are  not  transferable  except  by  vote  of  the  board  of  directors. 

PENALTY   FOR   NONPAYMENT   OF   ANNUAL   DUES. 

Sec.  5.  If  any  member  shall  neglect  or  refuse  to  pay  the  dues 
provided  for  in  the  rules  of  this  association  within  60  days  after 
due  notice  by  the  secretary,  the  secretary  may  strike  his  name 
from  the  rolls ;  and  no  member  shall  be  entitled  to  make  complaints 
for  shipments  in  his  territory  while  in  arrears  for  dues,  nor  until 
such  arrears  are  paid  in  full. 

MEMBER'S   LIABILITY   TO    SUSPENSION. 

Sec.  6.  Any  member  of  this  association  who  shall  habitually 
fail  to  meet  his  engagements  with  the  wholesale  members  or  shall 
so  conduct  himself  as  to  bring  reproach  upon  the  association,  and 
shall  be  reported  by  any  member  to  the  secretary  of  this  associa- 

1  Thus  in  the  original. — Ed. 


190  Industrial  Combinations  and  Trusts 

tion,  shall  be  cited  to  appear  before  the  board  of  directors,  and 
should  he  fail  to  satisfy  the  board  of  directors  he  shall  no  longer 
be  considered  a  member  of  this  association  and  a  participant  in  its 
benefits. 


Article  II. — Complaints. 

WHO    SHALL   MAKE. 

Section  i.  Any  member  of  this  association  who  considers  that 
he  has  just  cause  for  complaint  against  any  wholesaler  or  manu- 
facturer or  their  agents,  may  file  said  complaint  with  the  secretary, 
of  this  association. 

HOW   MADE. 

Sec.  2.  All  complaints  shall  be  made  in  writing,  giving  as  full 
particulars  as  possible,  including  dates  of  shipment  and  arrival, 
car  number  and  initials,  original  point  of  shipment,  names  of  the 
consigner  and  consignee,  the  purpose  for  which  material  was  used, 
and  any  other  particulars  which  can  be  learned. 

TIME   LIMIT. 

Sec.  3.  All  complaints  to  be  handled  by  this  association  must 
be  filed  with  the  secretary  within  30  days  after  receipt  of  ship- 
ment at  point  of  destination.  No  complaint  from  any  member 
will  be  considered  when  made  on  account  of  sales  or  shipments 
made  within  15  days  after  the  date  of  said  member's  certificate  of 
membership. 

independent  action. 

Sec.  4.  In  case  any  member  elects  to  take  up  his  own  complaint 
direct  with  the  shipper  instead  of  filing  the  same  with  the  secre- 
tary, as  provided  in  foregoing  sections  he  shall  not  thereafter  be 
privileged  to  have  said  complaint  taken  up  by  association. 


secretary's  duty  in  reference  to  complaints. 

Sec.  6.  It  shall  be  the  duty  of  the  secretary  at  once  to  notify 
the  party  or  parties  against  whom  complaint  has  been  made,  with- 


Pools  and  Associations  19T 

out  giving  the  name  of  the  party  making  the  complaint.  If  the 
transaction  complained  of  was  made  by  a  commission  merchant, 
agent,  or  broker,  or  other  person,  the  principal  for  whom  they 
act  shall  also  be  notified  and  shall  be  considered  jointly  liable. 

PRIMARY   RULING   ON   RETAIL   DEALERS. 

Sec.  7.  The  primary  decision  as  to  who  are  and  who  are  not 
regular  retail  lumber  dealers,  in  the  territory  of  this  association, 
shall  rest  with  the  board  of  directors,  but  in  the  event  of  any  dif- 
ference of  opinion  arising  over  the  ruling  of  the  board  in  such  cases 
the  same  shall  be  submitted  to  arbitration,  according  to  rules  here- 
inafter provided  for  the  adjustment  of  complaints,  but  no  sale 
made  to  any  individual  or  firm  whose  status  may  not  have  been 
finally  determined  shall  be  subject  to  any  penalty  if  it  shall  appear 
that  due  diligence  has  been  employed  by  the  party  making  the  sale 
to  satisfy  himself  that  the  purchaser  was  entitled  to  recognition 
as  a  dealer. 

PLAN   OF  ARBITRATION. 

Sec.  8.  In  the  event  that  any  claim  is  made  against  a  manu- 
facturer or  wholesaler  who  may  be  a  member  of  any  regularly  or- 
ganized association  of  manufacturers  or  wholesalers,  it  shall  be  the 
duty  of  the  secretary  to  refer  the  matter  to  the  secretary  of  such 
manufacturers'  or  wholesalers'  organization  and  to  request  the 
immediate  presentation  of  the  case  to  the  party  complained  of 
and  the  adjustment  of  said  claim. 

If  it  be  found  impossible  to  adjust  the  claim  through  the  efforts 
of  the  secretary  of  this  association  acting  on  behalf  of  the  retailers, 
and  the  secretary  of  the  manufacturers'  or  wholesalers'  organiza- 
tion, acting  on  behalf  of  the  manufacturers  or  wholesalers,  then 
the  matter  shall  be  referred  to  a  board  of  arbitration,  consisting  of 
one  member  of  this  association  and  one  member  of  any  organization 
of  manufacturers  or  wholesalers  with  which  the  party  complained 
of  may  be  identified,  and  it  shall  be  the  duty  of  the  president  of 
this  organization  as  often  as,  and  when  necessary,  to  appoint  any 
member  to  act  as  arbitrator  on  behalf  of  this  association  and  its 
members.  The  two  persons  so  selected  shall  have  power  to  select 
a  third  person  to  act  with  and  constitute  the  board  of  arbitrators, 
which  shall  be  authorized  to  fully  adjust  the  claim,  the  decision  of 
such  board  of  arbitrators  to  be  final  and  binding  on  all  parties. 


192  Industrial  Combinations  and  Trusts 

Article  III. — Territory, 

TERRITORY   DESCRIBED. 

Section  i.  Members  shall  be  entitled  to  the  protection  of  this 
association  only  at  such  places  where  they  operate  yards  as  they 
shall  desire  to  have  placed  on  the  membership  lists  and  for  which 
there  shall  pay  annual  dues  for  each  place  so  protected.  It  shall 
be  understood,  however,  that  sidetracks  or  small  towns  where 
there  are  no  regular  retail  lumber  yards,  and  which  may  be,  under 
a  reasonable  construction,  considered  within  the  territory  of  mem- 
bers, shall  be  included  within  such  protection  without  extra  charge. 

OTHER  ASSOCIATIONS. 

Sec.  2.  It  shall  be  contrary  to  the  spirit  of  this  association  for 
any  of  its  members  to  make  or  cause  to  be  made  shipments  into  the 
legitimate  territory  of  members  of  other  associations  of  retail 
lumber  dealers,  and  members  who  shall  so  offend  shall  be  made 
subject  to  such  discipline  as  may  be  provided  in  the  rules  of  this 
association. 

POACHERS. 

Sec.  3.  Any  person  or  persons,  whether  carrying  a  stock  of 
lumber  or  not,  making  a  practice  of  quoting  prices,  selling  or  ship- 
ping (to  other  than  regular  dealers)  lumber,  sash,  doors,  etc.,  into 
territory  under  the  protection  of  this  association,  where  said  per- 
son or  persons  have  no  yards,  shall  be  designated  "poachers." 
When  said  poachers  are  reported  in  the  membership  list  and  noti- 
fication sheet,  they  will  be  considered  as  consumers  at  points  other 
than  where  they  may  own  yards,  and  any  wholesaler  or  manufac- 
turer, or  their  agents  making  sales  or  shipments  to  said  parties 
in  the  territory  of  any  member  of  this  association,  after  being 
thus  reported,  will  be  considered  as  having  sold  or  shipped  to  a 
consumer. 

Article  IV. — Standard  of  grades. 

In  all  cases  of  dispute  as  to  quality  of  lumber  arising  between 
a  member  of  this  association  and  a  member  of  a  wholesalers'  or 
manufacturers'  association,  the  established  grading  rules  of  the 
association  to  which  the  wholesaler  or  manufacturer  belongs,  shall 
be  taken  as  a  basis  of  grade  on  which  settlement  shall  be  made, 


Pools   and   Associations  193 

unless  a  special  agreement  in  writing  for  a  special  grade  shall  have 
been  made  when  lumber  was  purchased. 

Article  V.— Reciprocity. 

Reciprocity  is  in  direct  line  with  the  true  principles  of  all  retail 
lumbermen's  associations,  and  this  association  does  hereby  pledge 
its  members,  as  far  as  it  is  practical  and  possible,  to  buy  only  of 
firms  whose  names  appear  on  our  membership  lists  or  those  of 
kindred  associations. 

Article  VI. — Additional  rules. 

The  work  of  this  association  shall  be  further  set  forth  in  detail, 
as  to  management  and  guidance  of  its  members,  by  the  adoption 
of  such  other  measures,  to  be  known  as  rules  or  by-laws,  as  may  in 
accordance  with  this  constitution  be  established. 

Article  VII. — Amendments. 

Amendments  to  this  constitution  may  be  made  at  any  regular 
meeting,  or  special  meeting  called  for  that  purpose,  by  a  vote  of 
at  least  two-thirds  of  the  members  present  and  voting. 

BY-LAWS. 


Sec.  3.  Whenever  and  as  often  as  any  wholesaler  or  manufac- 
turer, dealer,  or  his  agent  shall  sell  lumber,  sash,  doors,  or  blinds  for 
building  purposes  to  any  person  not  a  regular  dealer,  any  member 
doing  business  at  the  nearest  point  to  which  shipment  was  made 
shall  notify  the  secretary  of  this  association,  giving  him  the  date 
of  shipment  as  nearly  as  possible,  value  of  same,  etc.,  and  the  secre- 
tary shall  at  once  make  demand  of  the  wholesale  dealer  or  manu- 
facturer who  made  such  shipment,  notify  him  that  his  association 
has  a  claim  not  to  exceed  10  per  cent  of  the  value  of  said  sale  at 
the  point  of  shipment.  If  the  secretary  settles  the  claim,  the 
money  so  collected  shall  be  turned  into  the  treasury  and  a  draft 
made  on  the  treasurer  for  the  amount,  said  draft  to  be  fonvarded 
to  the  party  making  the  claim.  If  the  secretary  does  not  succeed 
in  making  the  settlement  and  same  is  contested,  he  shall  refer  the 
matter  to  the  arbitration  committee,  whose  duty  it  shall  be  to  hear 


194  Industrial  Combinations  and  Trusts 

both  sides  of  the  case,  determine  the  claim,  and  report  to  the  secre- 
tary. If  the  manufacturer  or  wholesale  dealer  refuses  to  abide 
by  the  decision  of  the  arbitration  committee,  it  shall  be  the  duty 
of  the  secretary  immediately  to  notify  the  members  of  the  associa- 
tion of  the  name  of  such  wholesale  dealer  or  manufacturer.  If 
any  member  continues  to  deal  with  such  wholesale  dealer  or  manu- 
facturer, he  shall  be  expelled  from  this  association:  Provided,  That 
nothing  in  this  section  be  so  construed  as  to  entitle  members  to 
make  complaint  for  any  lumber  sold  to  manufacturers  as  defined 
in  section  5  of  Article  II  of  the  constitution  of  this  association. 

Sec.  4.  In  the  event  that  any  claim  is  made  against  a  manu- 
facturer who  may  be  a  member  of  any  regular  organized  associa- 
tion of  manufacturers,  it  shall  then  be  the  duty  of  the  secretary 
to  refer  the  matter  to  the  secretary  of  such  manufacturers'  organi- 
zation and  request  the  immediate  presentation  of  the  case  to  the 
party  complained  of  and  the  adjustment  of  the  claim.  If  it  is 
found  impossible  to  adjust  the  claim  through  the  secretary  of  this 
association,  acting  on  behalf  of  the  retailer,  and  the  secretary  of 
the  manufacturers'  organization,  acting  in  behalf  of  the  whole- 
saler or  manufacturer,  then  the  matter  shall  be  referred  to  a  board 
of  arbitration,  consisting  of  one  member  of  this  association  and 
one  member  of  any  organization  of  manufacturers  with  which  the 
party  complained  of  may  be  identified  (and  it  shall  be  the  duty  of 
the  president  of  this  association,  as  often  as  and  whenever  necessary, 
to  appoint  a  person  to  act  as  arbitrator  on  behalf  of  this  associa- 
tion and  its  members),  and  the  two  persons  so  chosen  shall  have 
power  to  select  a  third  person  to  act  with  and  complete  the  board 
of  arbitrators,  who  shall  be  authorized  fully  to  adjust  the  claim, 
their  decision  to  be  final  and  binding  on  all  parties. 

Sec.  5.  Whenever  and  as  often  as  any  "commission  man" 
shall  sell  lumber,  sash,  doors,  or  blinds  to  any  person  not  regular 
dealers,  as  defined  in  section  1  of  Article  I  of  the  constitution  of 
this  association,  he  shall  be  treated  as  a  manufacturer  or  whole- 
saler, and  shall  be  reported  to  the  members  of  this  association  in 
the  same  manner  as  a  wholesaler,  as  described  in  section  4  of  these 
by-laws. 

Sec.  6.  Any  wholesale  dealer  or  manufacturer  selling  to  a  "  com- 
mission man"  or  shipping  on  his  order  to  any  person  or  persons 
not  regular  dealers  shall  be  held  liable,  the  same  as  if  he  had  made 
the  sale  himself,  and  be  subject  to  the  penalty  as  described  in  sec- 
tion 4  of  these  by-laws. 


Pools   and   Associations  195 

Sec.  7.  No  complaint  shall  be  entertained  from  a  member  against 
a  wholesale  dealer  or  manufacturer,  in  accordance  with  the  provi- 
sions of  section  3  of  these  by-laws,  for  a  bill  of  lumber  ordered  from 
a  wholesale  dealer  or  manufacturer  within  15  days  from  the  date 
of  his  certificate  of  membership;  and  no  complaint  shall  be  enter- 
tained from  any  member  who  is  three  months  in  arrears  for  dues. 

Sec.  8.  If  any  person  or  persons  after  having  been  reported  to 
the  members  of  this  association  in  accordance  with  the  provisions 
of  section  3  of  these  by-laws,  violating  the  rules  of  this  association 
shall  make  such  settlement  as  the  board  of  directors  shall  require, 
the  secretary  shall  immediately  notify  the  members  of  such  settle- 
ment. 

Sec.  9.  No  claim  shall  be  made  on  wholesale  dealers  or  manu- 
facturers for  sales  made  to  consumers  or  contractors  within  a  dis- 
tance of  15  miles  from  the  public  square  of  any  wholesale  market, 
provided  said  lumber  is  consumed  within  said  distance;  also  pro- 
vided that  said  territory  shall  be  so  confined  by  this  association 
or  its  board  of  directors. 

Exhibit  3 
"fundamental  agreement"  of  the  explosive  trade1 

This  Agreement,  made  this  19th,  day  of  December,  1889,  be- 
tween E.  I.  Du  Pont  de  Nemours  &  Company,  a  co-partnership 
doing  business  near  Wilmington,  Delaware;  The  Hazard  Powder 
Company,  a  corporation  organized  under  the  laws  of  the  State  of 
Connecticut;  the  Laflin  &  Rand  Powder  Company,  a  corporation 
organized  under  the  laws  of  the  State  of  New  York;  the  three  in- 
dividual concerns  named  in  the  foregoing  being  in  some  of  the 
provisions  hereof  grouped  as  one  collective  party,  and  called  the 
"Three  Companies";  and  the  Oriental  Powder  Mills,  a  cor- 
poration organized  under  the  laws  of  the  State  of  Maine;  The 
American  Powder  Mills,  a  corporation  organized  under  the 
laws  of  the  State  of  Massachusetts ;  the  Austin  Powder  Company, 
the  Miami  Powder  Company,  The  King  Powder  Company, 
The  Ohio  Powder  Company,  said  last  named  four  corporations 
being  organized  under  the  laws  of  the  State  of  Ohio;  The  Sycamore 
Powder  Company,  a  corporation  organized  under  the  laws  of  the 
State  of  Tennessee;  the  Lake  Superior  Powder  Company,  a 

1  United  States  of  America  v.  E.  I.  du  Pont  de  Nemours  and  Company. 
Government  Exhibit  No.  6,  Pet.  Rec.  Exhibits,  vol.  i,  pp.  94  ff. 


196  Industrial  Combinations  and  Trusts 

corporation  organized  under  the  laws  of  the  State  of  Michigan;  the 
Marcellus  Powder  Company,  a  corporation  organized  under 
the  laws  of  the  State  of  New  York. 

Whereas,  the  parties  hereto  make  and  sell  gunpowder  for  blast- 
ing or  sporting  purposes,  or  both;  and 

Whereas,  the  said  parties  now  enjoy  trade  of  a  certain  amount 
in  one  or  both  of  the  said  two  kinds  of  powder;  and 

Whereas,  for  the  purposes  of  this  agreement  "Blasting"  powder 
is  defined  to  be,  such  powder  as  is  made  of  either  nitrate  of  potassa 
or  nitrate  of  soda,  mixed  with  charcoal  and  sulphur,  and  designed 
to  be  used  for  mining  or  blasting  operations;  and  "Sporting" 
powder  is  defined  to  be  such  powder  as  is  made  of  Nitrate  of  po- 
tassa, charcoal  and  sulphur,  and  designed  for  use  in  small  arms, 
(rifles,  or  smooth  bores),  cannon,  mortars  and  shells;  or  in  the 
manufacture  of  fireworks,  safety-fuse  and  squibs;  being  of  varying 
qualities  and  strength  and  of  many  brands  and  trade  names,  all 
of  which  are  distinctly  different  from  those  of  blasting  powder;  and 

Whereas,  in  certain  portions  of  the  United  States  the  cost  of 
selling  said  powder  is  excessive;  and 

Whereas,  for  this  and  other  causes  the  carrying  on  of  business 
has  been  unsatisfactory  in  the  greater  part  of  the  United  States 
to  the  above  named  parties ;  and 

Whereas,  it  is  important  that  reasonable  and  uniform  prices 
should  be  maintained,  that  customers  and  the  public  generally 
should  be  relieved  from  the  inconveniences  and  uncertainties  due 
to  rapid  and  uncertain  fluctuations,  that  unjust  discrimination 
between  persons  and  localities  should  be  avoided,  and  that  con- 
tractors and  other  consumers  should  be  enabled  to  arrange  with 
reasonable  certainty  such  portions  of  their  business  as  are  dependent 
upon  the  acts  of  the  parties  hereto;  and 

Whereas,  it  is  therefore  desired  by  all  parties  hereto  to  enter 
into  the  agreement  hereinafter  set  forth, 

Now  Therefore,  in  Consideration  of  the  premises,  and  in 
consideration  of  the  one  dollar  and  other  good  and  valuable  con- 
siderations to  each  of  the  parties  by  each  of  the  others  paid,  the 
receipt  of  which  is  hereby  acknowledged ;  for  the  purpose  of  regulat- 
ing in  a  convenient  and  desirable  manner  the  business  of  the  parties 
hereto,  in  such  of  their  sales  of  powder  as  are  treated  in  this  agree- 
ment; for  the  purpose  of  avoiding  unnecessary  loss  in  the  sale  and 
disposition  of  such  powder  by  ill  regulated  or  unauthorized  com- 
petition and  under-bidding  by  the  agents  of  the  parties  hereto, 


Pools   and   Associations  197 

and  for  the  purpose  of  protecting  consumers  and  the  public  from 
unjust  fluctuations  in  prices  and  from  unjust  discriminations. 
It  is  Hereby  Agreed  by  the  Parties  Hereto  as  Follows: — 
I: — That  during  the  existence  of  this  agreement  the  trade  in 
gunpowder  in  and  throughout  all  of  the  United  States  and  its 
Territories,  now  or  hereafter  enjoyed  by  each  and  all  of  the  parties 
hereto,  shall  be  subject  to  the  provisions  of  this  agreement,  with 
the  following  three  exceptions,  viz: — 

(1)  Such  trade  as  either  of  said  concerns  constituting  the  parties 
hereto  may  now  or  hereafter  have  in  powder  actually  exported  to 
foreign  countries. 

(2)  Such  trade  as  either  of  said  concerns  constituting  the  par- 
ties hereto  may  now  or  hereafter  have  with  the  Government  of  the 
United  States. 

(3)  Such  trade  in  Blasting  powder  as  either  of  said  concerns 
constituting  the  parties  hereto  have  in  the  Anthracite  Regions  of 
the  State  of  Pennsylvania.  (This  trade  having  been  retained  at 
extraordinary  sacrifices  by  the  manufactories  located  within  said 
district,  some  of  which  are  owned  or  controlled  by  certain  of  the 
parties  to  this  agreement,  is  to  belong  to  the  parties  who  now  enjoy 
it,  and  no  part  of  the  same  is  to  be  taken  by  or  shared  with  either 
of  the  nine  concerns  last  named  in  the  first  paragraph  of  this  agree- 
ment). 

The  said  Anthracite  Regions  of  Pennsylvania  are  understood  and 
agreed  to  be  bounded  and  described  as  follows:  All  of  Northumber- 
land County;  all  of  Montour  County;  all  of  Columbia  County; 
all  of  Luzerne  County;  all  of  Lackawanna  County;  in  Susquehanna 
County  the  following  named  townships,  Clifford,  Herrick  and 
Ararat;  all  of  Wayne  County  except  the  townships  touching  on  the 
Delaware  River;  all  of  Carbon  County;  all  of  Schuylkill  County; 
that  portion  of  Lebanon  County  north  of  the  "First  Blue  Moun- 
tain"; and  that  portion  of  Dauphin  County,  north  of  the  Southern 
boundaries  of  the  townships  of  Rush  and  Middle  Paxton, — being 
practically  that  portion  of  Dauphin  County  north  of  the  "First 
Blue  Mountain." 

II.  That  that  portion  of  the  United  States,  within  which  the 
regulation  of  trade  is  contemplated  by  this  agreement,  shall  for 
that  purpose  be  divided  into  districts  within  each  of  which  uniform 
prices  shall  generally  prevail,  and  said  "Districts"  are  defined  as 
follows: 

First  District:  The  territory  as  follows:  The  New  England  States 


198  Industrial  Combinations  and  Trusts 

excepting  the  county  of  Rutland  in  the  State  of  Vermont,  which 
is  included  with  the  State  of  New  York,  in  the  Second  District;  and 
excepting  that  the  price  for  Blasting  powder,  only,  at  Ports  upon 
Long  Island  Sound,  West  from  Westerly,  R.  I.,  included,  shall  be 
twenty-five  cents  per  keg  lower  than  the  minimum  price  for  the 
same  in  the  First  District,  generally;  provided  however,  that  such 
lower  price  shall  not  be  made  less  than  the  regular  list  price  for 
New  York  City. 

Second  District:  The  territory  as  follows:  The  States  of  New  York 
(the  County  of  Rutland,  Vt.,  included  therewith),  New  Jersey, 
Pennsylvania,  Delaware,  Maryland,  West  Virginia  (excluding 
Bramwell  as  provided  hereinafter),  Ohio,  Indiana,  Illinois,  and 
those  portions  of  the  States  of  Michigan  and  Wisconsin  south  of 
the  44th.  parallel  of  latitude;  and  the  towns  on  the  banks  of  the 
Potomac,  the  Ohio,  and  the  Mississippi  Rivers,  adjoining  said 
territory. 

Third  District:  The  territory  as  follows:  The  States  of  Minnesota, 
Iowa,  Missouri,  Kentucky,  Tennessee,  Virginia,  (Bramwell,  W.  Va., 
to  be  included  also  in  this  District),  North  Carolina,  and  those 
portions  of  the  States  of  South  Carolina,  Georgia,  Alabama  and 
Mississippi  north  of  the  33rd.  parallel  of  latitude,  and  also  those 
portions  of  the  States  of  Michigan  and  Wisconsin  north  of  the  44th. 
parallel  of  latitude;  and  also  all  that  part  of  the  State  of  Kansas 
east  of  the  98th.  meridian  of  longitude;  and  the  towns  in  Arkansas 
on  the  bank  of  the  Mississippi  River. 

Fourth  District:  The  Territory  as  follows:  The  State  of  Arkansas, 
excepting  the  towns  on  the  bank  of  the  Mississippi  River,  the 
States  of  Louisiana  and  Florida  and  those  portions  of  the  States 
of  Mississippi,  Alabama,  Georgia  and  South  Carolina,  south  of  the 
33rd.  parallel  of  latitude,  and  also  those  portions  of  Dakota  and 
Nebraska  east  of  the  103rd.  meridian  of  longitude,  excepting  the 
towns  therein  which  adjoin  the  eastern  boundaries  thereof;  and  also 
all  the  State  of  Kansas,  west  of  the  98th.  meridian  of  longitude. 

Fifth  District:  The  territory  as  follows:  The  Indian  Territory 
and  the  State  of  Texas. 

Sixth  District:  The  "Neutral  Belt,"  which  consists  of  the  States 
of  Colorado  and  Montana  and  the  Territories  of  Wyoming,  Utah 
and  New  Mexico,  all  of  the  same;  and  also  those  portions  of  Dakota 
and  Nebraska,  west  of  the  103rd.  meridian  of  longitude. 

Seventh  District:  All  of  the  States  and  Territories  of  the  United 
States  west  of  the  western  boundaries  of  the  said  "Neutral  Belt", 


Pools   and   Associations  199 

which  are  named  as  follows:  Oregon,  Washington,  Idaho,  Cali- 
fornia, Nevada  and  Arizona. 

III.  That  of  the  whole  aggregate  trade  of  all  the  concerns  com- 
prising the  parties  hereto,  which  is  made  subject  to  this  Agree- 
ment, division  shall  be  made  among  said  parties  in  the  manner 
hereinbelow  provided: 

The  yearly  allotments  of  trade  to  the  "Three  Companies"  shall 
be  to  them  as  one  collective  party,  and  shall  be  in  such  quantities 
of  Sporting  and  Blasting  powder  as  shall  be  equal  to  the  average 
sales  made  by  them  of  said  kinds,  respectively,  for  the  years  1882, 
1883  and  18S4.    [Sptg.  209,  738,  Blstg.  662,  420.] 

The  yearly  allotments  of  trade  to  the  other  concerns,  parties  to 
this  Agreement,  shall  be  as  follows: 

Oriental  Powder  Mills, 

Sporting  powder,  Twenty-four  thousand  two  hundred  and 
twenty-three  (24,223)  kegs. 

Blasting  powder,  Sixty-five  thousand  one  hundred  and  fourteen 
(65,114)  kegs. 

American  Powder  Mills, 

Sporting  powder,  Thirty-one  thousand  seven  hundred  and  fifty 
(31,750)  kegs. 

Blasting  powder,  Fifty-seven  thousand  three  hundred  and  sixty- 
six  (57,366)  kegs. 

Austin  Powder  Company, 

Sporting  powder,  Fifteen  thousand  five  hundred  and  seventy- 
five  (15,575)  kegs. 

Blasting  powder,  Sixty-five  thousand  (65,000)  kegs. 

Miami  Powder  Company. 

Sporting  powder,  Eleven  thousand  four  hundred  and  fifty-two 
(11,452)  kegs. 

Blasting  powder,  Sixty-six  thousand  five  hundred  and  twenty 
(66,520)  kegs. 

The  King  Powder  Company, 

Sporting  powder,  Twenty-five  thousand  (25,000)  kegs;  and  be- 
sides these  there  shall  be  a  Special  Allotment  to  said  Company  of 
Five  Thousand  (5,000)  kegs  of  Sporting  powder. 


200  Industrial  Combinations  and  Trusts 

Blasting  powder  to  the  same  Company,  One  hundred  thousand 
(100,000)  kegs. 

The  Ohio  Powder  Company, 

Blasting  powder,  Sixty  thousand  (60,000)  kegs. 

The  Sycamore  Powder  Company, 

Sporting  powder,  Eight  thousand  (8,000)  kegs. 
Blasting  powder,  Thirty  thousand  (30,000)  kegs. 

The  Lake  Superior  Powder  Company, 
Blasting  powder,  Twenty  thousand  (20,000)  kegs. 

The  Marcellus  Powder  Company, 

Blasting  powder,  Twenty  thousand  (20,000)  kegs. 

Making  the  total  of  the  sums  which  are  thus  allotted  and  taken 
as  the  bases  for  the  division  of  said  trade  to  be: 

Of  Sporting  powder, 

Of  Blasting  powder, 

(Excluding  the  said  Special  Allotment  of  5,000  kegs  of  Sporting 
powder  to  The  King  Powder  Company.) 

It  is  Also  Understood  and  Agreed  That  the  sales  out  of  the 
above  allotments  of  all  of  the  parties  hereto  in  the  following  States 
and  Territories,  viz:  California,  Nevada,  Oregon,  Colorado,  Wash- 
ington, Idaho,  Arizona,  Montana,  Utah  and  New  Mexico,  are  to 
be  regulated  by  a  certain  supplementary  agreement  to  be  entered 
into  between  all  of  the  concerns  composing  the  parties  hereto  with 
the  California  Powder  Works. 

IV.  That  the  aggregate  sales  made  by  all  the  parties  hereto  in 
any  one  year  of  Sporting  and  of  Blasting  powder  shall,  for  each 
kind  separately,  be  considered  as  a  volume  of  trade  of  certain  value 
to  be  divided  among  all  of  said  parties  in  direct  proportion  to  the 
yearly  allotments  to  each  and  by  the  method  hereinbelow  set  forth: 

The  value  of  said  volume  of  trade  shall  be  reckoned  at  the  rate 
of  thirty-five  (35)  per  cent  of  the  list  price  per  keg  for  Sporting 
powder,  and  twenty-five  (25)  per  cent  of  the  list  price  for  Blasting 
powder,  in  the  "Second  District";  subject  to  change  as  said  list 
prices  may  be  changed;  said  values  so  reckoned  being  now  for  Sport- 
ing powder  $1.75  per  keg  and  for  Blasting  powder  50  cents  per  keg. 

The  method  for  determining  the  "list  price"  last  mentioned,  to 


Pools   and   Associations  201 

used  J  as  the  basis  for  said  adjustment  of  sales  of  either  of  said 
kinds  of  powder,  shall  be  by  taking  the  average  of  the  prices  for 
the  montns  of  the  period  under  treatment,  (considering  as  a  whole 
month  a  fraction  greater  than  one  half)  as  said  prices  shall  have 
been  fixed  in  accordance  with  the  provisions  of  this  agreement. 

V.  That  the  periods  for  settlement  in  division  of  trade  shall  be 
as  follows: 

The  first  period  shall  be,  and  shall  comprise  the  sales  of,  the 
six  months  ending  June  30th,  1890,  made  by  all  the  parties  hereto, 
and  subsequently  the  periods  shall  be  each  comprising  their  sales 
for  twelve  months  and  ending  June  30th.  of  each  year.  And  ad- 
justment of  differences  in  sales  for  said  first  period  shall  be  upon 
the  basis  of  one  half  of  said  allotments. 

VI.  That  at  the  end  of  each  of  said  periods,  and  within  sixty 
days  thereafter,  each  of  the  parties  hereto  (the  "Three  Companies" 
for  this  purpose  being  considered  as  one  party)  shall  make  up 
separate  sworn  statements  showing  their  sales  of  Sporting  and 
Blasting  powder,  respectively,  made  within  said  periods,  and 
forward  the  same  to  the  Board  of  Trade,  hereinafter  provided  to  be 
established. 

The  Board  of  Trade  shall  consider  separately  the  sales  of  Sport- 
ing and  Blasting  powder  as  the  same  shall  appear  in  said  sworn 
statements,  and  shall  make  computation  of  the  differences  therein 
exhibited ;  (By  said  differences  meaning  the  sales  in  excess  or  in  de- 
ficiency of  the  proportions  to  which  each  party  should  be  entitled 
in  the  division  of  trade  as  provided  by  Section  IV.  hereof)  and, 
considering  and  valuing  said  differences,  at  said  rates  per  keg,  for 
the  respective  kinds  of  powder,  shall  make  adjustment  or  clearance 
of  such  differences,  in  money  values,  and  shall  furnish  each  party 
a  written  accounting  in  full  detail,  of  such  clearing  process :  and  the 
same  proving  to  be  a  correct  computation,  the  liabilities  of  the 
parties  shall  be  as  thus  determined  and  stated;  and  within  thirty 
days  from  that  time  each  party  so  made  liable  shall  pay  into  the 
Treasury  such  sum  of  money  as  shall  have  thus  been  adjudged  to 
be  due  from  it.  And  all  of  said  money  thus  paid  into  the  Treasury 
shall  be  distributed  among  the  parties  hereto,  entitled  to  the  same, 
in  sums  to  each  of  them  as  the  same  shall  have  been  determined  by 
said  accounting  of  the  Board  of  Trade. 

VII.  That  in  addition  to  the  sworn  statements  to  be  made  at  the 
end  of  each  of  said  periods  as  hereinbefore  provided  for,  each  of 

1  Thus  in  original. — Ed. 


202  Industrial  Combinations  and  Trusts 

the  parties  hereto  (the  "Three  Companies"  for  this  purpose  being 
considered  as  one  party)  shall  at  the  end  of  each  quarter  of  each 
calendar  year,  and  within  thirty  days  thereafter,  make  up  state- 
ments which  shall  be  estimates,  as  nearly  correct  as  practicable,  of 
their  sales  of  each  of  said  kinds  of  powder  during  said  quarter  and 
shall  immediately  forward  the  same  to  the  said  Board  of  Trade 
which  shall  immediately  furnish  each  of  the  parties  hereto  with  a 
combined  statement  of  all  of  said  sales  during  said  quarter,  show- 
ing the  sales  of  each  of  said  parties,  of  each  of  said  kinds;  which 
said  combined  statement  is  to  be  for  the  guidance  of  each  of  the 
parties;  to  the  end  that  their  sales  may  not,  for  the  whole  of  the 
then  current  period,  be  in  excess  of  their  allotments. 

VIII.  That  in  all  statements  of  sales  provided  by  this  agreement 
to  be  made  and  in  all  adjustments  thereunder,  Sporting  powder, 
wThether  sold  in  packages  of  twenty-five  pounds  each  or  in  pack- 
ages of  other  sizes,  and  whether  of  one  quality  or  another,  shall  be 
considered  and  taken  as  if  the  same  were  all  of  one  quality,  to  wit: 
"Rifle"  (now  so  called  in  the  trade)  powder;  and  shall  be  stated 
in  units  of  twenty-five  pounds  each  and  fractions  thereof,  if  any, 
in  decimals,  and  Blasting  powder  whether  made  of  nitrate  of  potassa 
or  nitrate  of  soda,  shall  be  considered  and  taken  as  if  made  of  last 
named  material. 

IX.  That  in  none  of  the  statements  hereinbefore  provided  to  be 
made  by  the  parties  hereto  concerning  their  sales  and  for  the  pur- 
pose of  dividing  the  whole  of  their  trade  which  is  subject  to  the 
provisions  of  this  agreement  shall  there  be  counted  or  included  any 
sales  of  powder  made  by  any  one  of  them  to  any  other  of  them.  It 
being  intended  that  if  one  party  shall  sell  powder  to  another  such 
powder  shall  be  counted  only  in  the  sales  of  the  party  who  shall  mar- 
ket the  same. 

X.  That  the  statements  of  sales  made  by  each  of  the  parties  hereto 
for  the  purpose  of  dividing  the  trade  of  the  first  period  (January 
i St., -June  30th.,  1890)  shall  include  all  the  powder  delivered  in  said 
period  though  the  same  may  have  been  sold  previously. 

XL  That  immediately  after  the  adoption  of  this  Agreement, 
there  shall  be  elected  a  Board  of  Trade,  so  to  be  called,  consisting  of 
five  members,  and  a  Secretary  and  Treasurer  of  the  same. 

XII.  That  at  all  elections  of  the  memfbers  1  of  the  Board  of  Trade 
and  of  a  Secretary  and  Treasurer  of  the  same,  voting  shall  be  by 
ballot  and  each  of  the  parties  to  this  Agreement  shall  have  one  vote 
1  Thus  in  the  original. — Ed. 


Pools   and   Associations 


203 


(thus  providing  for  one  vote  by  each  of  the  "Three  Companies") 
and  a  majority  of  the  votes  so  cast  shall  elect:  parties  hereto  not 
present  at  a  meeting  may  be  represented  by  personal  proxy. 


XVII.  That  the  Board  of  Trade  shall  have  power  to  fix  prices 
and  to  vary  or  change  the  same  at  any  time  and  for  any  place,  to 
meet  contingencies  and  for  protection  of  the  common  interests.  It 
shall  have  power  to  enforce  any  rules  and  regulations  which  may  be 
adopted  by  the  parties  to  this  agreement  and  to  take  any  measures 
for  that  purpose  which  may  in  its  judgment  be  necessary.  It  shall 
hear  and  adjudge  in  all  cases  of  grievances,  when  the  parties  in- 
volved shall  not  be  able  to  agree  among  themselves. 

The  members  of  the  Board  shall  be  re-imbursed  for  all  expenses 
incurred  by  them  in  performance  of  their  duties. 

XVIII.  That  any  action  taken  at  a  General  Meeting  affecting 
the  rights  of  any  individual  concern,  shall  have  the  unanimous  con- 
sent of  all  the  parties  hereto  to  be  valid  and  of  authority;  excepting 
only  in  balloting  for  members  of  the  Board  of  Trade  and  for  the 
Secretary  and  Treasurer  as  hereinbefore,  in  Section  XII,  provided. 

XIX.  That  any  General  Meeting  duly  authorized  may  review  or 
reverse  the  acts  of  the  Board  of  Trade  and  instruct  it  upon  any 
matter.  And  at  any  General  Meeting  when  a  question  shall  be  of 
approval  or  reversal  of  any  previous  acts  or  decisions,  parties  hereto 
not  then  present  may  have  a  vote  upon  such  question  by  personal 
proxy  giving  power  thereunto. 

XX.  That  the  duties  of  the  Secretary  and  Treasurer  shall  be  as 
follows:  he  shall  issue  notices  for  and  shall  attend  all  Meetings  of 
the  Board  of  Trade  and  all  General  Meetings  of  the  parties  hereto 
and  shall  keep  a  faithful  record  of  the  proceedings  at  all  such  Meet- 
ings and  shall  send  a  copy  of  the  same  to  each  of  the  parties  hereto. 
And  he  shall  be  the  medium  of  the  communication  between  the 
members  of  the  Board  of  Trade  as  well  as  between  all  the  parties 
to  this  agreement  upon  matters  of  general  concern. 

He  shall  receive  and  disburse  all  moneys  for  expenditures  in  the 
common  interest  in  accordance  with  the  methods  prescribed  there- 
for and  shall  make  semi-annual  reports  to  all  the  parties,  of  such  ex- 
penditures and  of  the  disposition  of  all  moneys  coming  to  his  hands. 

He  shall  receive  a  salary  of  $2500  per  annum  for  his  sendees. 

XXI.  That  all  assessments  of  money  for  expenditures  made  or 
to  be  made  for  the  common  interest  shall  be  upon  each  party  in 


204  Industrial  Combinations  and  Trusts 

direct  proportion  as  its  allotment  in  number  of  kegs  of  both  kinds 
of  powder  is  to  the  total  of  the  allotments  to  all  the  parties  in  num- 
ber of  kegs  of  both  kinds,  (excluding  said  Special  Allotment  of 
Sporting  powder  to  The  King  Powder  Co.)  with  exception  only  as 
provided  in  Section  XXII.  hereof.  And  no  obligation  for  the  pay- 
ment of  money  shall  be  incurred,  other  than  for  such  expenditures 
as  are  provided  for  in  this  agreement,  except  the  same  shall  be  done 
at  a  General  Meeting  held  as  hereinbefore  provided. 

XXII.  That  any  party  hereto  who  shall  suffer  excessive  loss  by  an 
overt  act  of  the  Board  of  Trade, — as  for  instance  the  reduction  of  a  price 
at  a  place,  in  treatment  of  a  local  disturbance  of  trade, — shall  receive 
compensation  for  the  damage  it  shall  sustain  by  payment  of  money 
as  may  be  agreed  upon  at  a  General  Meeting,  on  the  recommendation 
of  the  Board  of  Trade.1  And  requisitions  for  money  to  pay  such 
damages  shall  be  made  by  the  Board  upon  those  of  the  parties 
who  make  and  sell  that  specific  kind  of  powder  regarding  which 
such  award  for  damages  shall  have  been  settled;  and  contributions 
shall  be  required  of  them  in  direct  proportion  to  their  allotments 
for  that  specific  kind  of  powder. 

XXIII.  That  all  the  concerns  constituting  the  parties  hereto 
shall  be  and  are  severally  bound  to  each  other  for  the  fulfillment 
of  all  the  obligations  of  this  agreement,  but  no  concern  shall  be 
responsible  for  any  default  of  any  other  concern. 

XXIV.  That  an  Agreement  or  Agreements,  supplementary  and 
auxiliary  to  this,  shall  be  executed  by  all  the  parties  hereto  relating 
to  the  prices  to  be  maintained  for  sales  of  powder,  and  the  general 
harmonious  arrangement  of  the  powder  trade. 

XXV.  That  the  existing  agreements  between  the  twelve  ^.con- 
cerns, parties  hereto,  and  the  California  Powder  Works,  and 
between  the  "Three  Companies"  and  the  other  nine  concerns, 
parties  hereto,  relating  to  the  trade  of  the  "Pacific  Coast  District" 
and  the  "Neutral  Belt",  shall  continue  with  the  consent  of  all  the 
parties  hereto,  now  expressed;  and  the  consent  thereto  of  the  Cali- 
fornia Powder  Works  shall  be  obtained  if  practicable.  New  written 
Agreements  to  be  the  same  in  effect  as  those  now  existing  shall  be 
made  and  executed,  if  possible,  at  an  early  date;  the  same  to  be  co- 
terminous with  this  Agreement. 

XXVI.  That  the  benefits  and  liabilities  arising  from  this  Agree- 
ment shall  extend  to  the  successors  and  assigns  of  each  of  the 
concerns  comprising  the  parties  hereto  and  to  the  executors  and 

1  Italics  are  the  editor's. 


Pools   and   Associations  205 

administrators  of  the  members  of  the  firm  of  E.  I.  Du  Pont,  de 
Nemours  &  Company,  but  no  concern  shall  be  liable  for  any  de- 
fault not  committed  by  itself  except  as  herein  expressly  specified. 

XXVII.  That  this  Agreement  shall  begin  to  be  in  effect  on  the  1st. 
day  of  January,  1890,  and  shall  remain  in  force  until  the  30th.  day  of 
June,  1895,  and  shall  continue  in  force  thereafter  from  year  to  year, 
indefinitely,  so  long  as  none  of  the  concerns  shall  give  written  notice 
to  all  the  others,  through  the  Secretary  of  the  Board  of  Trade,  of  its 
intention  to  withdraw  at  least  three  months  previous  to  June  30th., 
1895 ;  but  such  notice  having  been  given,  in  any  year  succeeding  the 
year  1894,  this  Agreement  shall  terminate  June  30th.  of  said  year. 

XXVIII.  That  the  Schaghticoke  Powder  Company,  a  corpora- 
tion organized  under  the  laws  of  the  State  of  New  York,  being 
owned  as  to  a  majority  of  its  stock,  and  controlled  by  the  Laflin 
&  Rand  Powder  Company,  it  is  understood  and  agreed  that  all 
of  its  sales  shall  be  considered  as  sales  of  the  Laflin  &  Rand  Powder 
Co.,  and  said  Laflin  &  Rand  Powder  Co.  hereby  guarantees  that 
said  Schaghticoke  Powder  Co.  will  respect  and  faithfully  comply 
with  all  the  provisions  of  this  Agreement  with  the  same  effect  as 
if  it  had  signed  this  Agreement  as  a  party  hereto  included  under 
the  name  of  the  Laflin  &  Rand  Powder  Company. 

XXIX.  This  shall  be  called  the  "Fundamental  Agreement." 
In  Witness  Whereof,  the  concerns  forming  the  parties  hereto, 

have  hereunto  set  their  hands  and  affixed  their  corporate  seals  the 
day  and  year  first  above  written. 

(Signatures) 

Exhibit  4 
addyston  pipe  pools  * 

From  the  minutes  of  the  association,  a  copy  of  which  was  put 
in  evidence  by  the  petitioner,  it  appeared  that  prior  to  December 
28,  1894,  the  Anniston  Company,  the  Howard-Harrison  Company, 
the  Chattanooga  Company,  and  the  South  Pittsburg  Company 
had  been  associated  as  the  Southern  Associated  Pipe  Works.  Upon 
that  date  the  Addyston  Company  and  Dennis  Long  &  Co.  were 
admitted  to  membership,  and  the  following  plan  was  then  adopted: 

1  United  States  v.  Addyston  Pipe  6*  Steel  Company.  85  Fed.  271.  Cf.  pp. 
273  ff.  The  first  of  these  pools  was  to  divide  territory,  the  second  was  an  ex- 
ample of  the  so  called  auction  pool.  The  case  was  carried  to  the  Supreme  Court 
of  the  United  States  and  a  decree  entered  in  favor  of  the  Government. — Ed. 


206  Industrial  Combinations  and  Trusts 

"First.  The  bonuses  on  the  first  90,000  tons  of  pipe  secured 
in  any  territory,  16"  and  smaller,  shall  be  divided  equally  among 
six  shops.  Second.  The  bonuses  on  the  next  75,000  tons,  30" 
and  smaller  sizes,  to  be  divided  among  five  shops,  South  Pittsburg 
not  participating.  Third.  The  bonuses  on  the  next  40,000  tons,  36" 
and  smaller  sizes,  to  be  divided  among  four  shops,  Anniston  and 
South  Pittsburg  not  participating.  Fourth.  The  bonuses  on  the 
next  15,000  tons,  consisting  of  all  sizes  of  pipe,  shall  be  divided 
among  three  shops,  Chattanooga,  South  Pittsburg,  and  Anniston 
not  participating.  The  above  division  is  based  on  the  following 
tonnage  of  capacity:  South  Pittsburg,  15,000  tons;  Anniston  30,000 
tons;  Chattanooga,  40,000  tons;  Bessemer,  45,000  tons;  Louisville, 
45,000  tons;  Cincinnati,  45,000  tons.  When  the  220,000  tons  have 
been  made  and  shipped,  and  the  bonuses  divided  as  hereinafter 
provided,  the  auditor  shall  set  aside  into  a  reserve  fund  all  bonuses 
arising  from  the  excess  of  shipments  over  220,000  tons,  and  shall 
divide  the  same  at  the  end  of  the  year  among  the  respective  com- 
panies according  to  the  percentage  of  the  excess  of  tonnage  they 
may  have  shipped  (of  the  sizes  made  by  them)  either  in  pay  or 
free  territory.  It  is  also  the  intention  of  this  proposition  that  the 
bonuses  on  all  pipe  larger  than  36  inches  in  diameter  shall  be  divided 
equally  between  the  Addyston  Pipe  &  Steel  Company,  Dennis 
Long  &  Co.,  and  the  Howard-Harrison  Company." 

"It  was  thereupon  resolved:  First.  That  this  agreement  shall 
last  for  two  years  from  the  date  of  the  signing  of  same,  until  De- 
cember 31,  1896.  Second.  On  any  question  coming  before  the 
association  requiring  a  vote,  it  shall  take  five  affirmative  votes 
thereon  to  carry  said  question,  each  member  of  this  association 
being  entitled  to  but  one  vote.  Third.  The  Addyston  Pipe  &  Steel 
Company  shall  handle  the  business  of  the  gas  and  water  companies 
of  Cincinnati,  Ohio,  Covington,  and  Newport,  Ky.,  and  pay  the 
bonus  hereafter  mentioned,  and  the  balance  of  the  parties  to  this 
agreement  shall  bid  on  such  work  such  reasonable  prices  as  they 
shall  dictate.  Fourth.  Dennis  Long  &  Company,  of  Louisville, 
Ky.,  shall  handle  Louisville,  Ky.,  Jeffersonville,  Ind.,  and  New 
Albany,  Ind.,  furnishing  all  the  pipe  for  gas  and  water  works  in 
above-named  cities.  Fifth.  The  Anniston  Pipe  &  Foundry  Com- 
pany shall  handle  Anniston,  Ala.,  and  Atlanta,  Ga.,  furnishing 
all  pipe  for  gas  and  water  companies  in  above-named  cities.  Sixth. 
The  Chattanooga  Foundry  &  Pipe  Works  shall  handle  Chattanooga, 
Tenn.,  and  New  Orleans,  La.,  furnishing  all  gas  and  water  pipe 


Pools  and   Associations 


207 


in  the  above-named  cities.  Seventh.  The  Howard-Harrison  Iron 
Company  shall  handle  Bessemer  and  Birmingham,  Ala.,  and  St. 
Louis,  Mo.,  furnishing  all  pipe  for  gas  and  water  companies  in  the 
above-named  cities;  extra  bonus  to  be  put  on  East  St.  Louis,  and 
Madison,  111.,  so  as  to  protect  the  prices  named  for  St.  Louis,  Mo. 
Eighth.  South  Pittsburg  Pipe  Works  shall  handle  Omaha,  Neb., 
on  all  sizes  required  by  that  city  during  the  year  of  1895,  conferring 
with  the  other  companies  and  co-operating  with  them.  There- 
after they  shall  handle  the  gas  and  water  companies  of  Omaha, 
Neb.,  on  such  sizes  as  they  make. 

"Note:  It  is  understood  that  all  the  shops  who  are  members  of 
this  association  shall  handle  the  business  of  the  gas  and  water 
companies  of  the  cities  set  apart  for  them  including  all  sizes  of  pipe 
made  by  them. 

"The  following  bonuses  were  adopted  for  the  different  states 
as  named  below:  All  railroad  or  culvert  pipe  or  pipe  for  any  drain- 
age or  sewerage  purposes  on  12"  and  larger  sizes  shipped  into  bonus 
territory  shall  pay  a  bonus  of  $1.00  per  ton.  On  all  sizes  below  12" 
and  shipped  into  '  bonus  territory '  for  the  purposes  above  named, 
there  shall  be  a  bonus  of  $2.00  per  ton. 


Alabama $3  00 

B'gham,  Ala.  ...  2  00 
Anniston,  Ala.  .  .    2  00 

Mobile,  Ala 1  go 

Arizona  Ter.    ...   3  00 

California 1  00 

Colorado 2  00 

Ind.  Ter 3  00 

North  C 1  00 

Tenn.,  East  of 

C'land 2  00 

Tenn.,  Middle  and 

West 3  00 

Illinois,       except 

Madison     and 

East  St.  Louis, 

as     previously 

provided 2  00 


List  of  Bonuses 

Wyoming  ....  $4 

Oregon 1 

Ohio 1 

N.  D 2 

S.  D 2 

Florida 1 

Georgia 2 

Atlanta,  Ga. .  .  2 
Ga.  Coasts  Pts  1 

Idaho 2 

Nev 3 

Oklahoma  ....  3 

Wis 2 

Texas,  Interior  3 
Texas  Coast  . .  1 
Wash'ton  Ter.  1 
Michigan  .  . .  .  1 
West  Va 1 


00  Kansas  ...  .$2  00 

00  Ky 2  00 

50  La 3  00 

00  Miss 4  00 

00  Mo 2  00 

00  Montana ...   3  00 

00  Nebraska  .  .  3  00 

00  N.  Mex.  ...  3  00 

00  S.  C 1  00 

00  Minn 2  00 

00  Utah 4  00 

00  Indiana  ....   2  00 

00  Iowa 2  00 

00 
00 
00 

5° 
00 


2o8  Industrial  Combinations  and  Trusts 

"All  other  territory  free. 

"On  motion  of  Mr.  Llewellyn,  the  bonuses  on  all  city  work  as 
specially  reserved  shall  be  $2.00  per  ton." 

The  states,  for  sales  in  which,  bonuses  had  to  be  paid  into  the 
association  were  called  "pay"  territory,  as  distinguished  from 
"free"  territory,  in  which  defendants  were  at  liberty  to  make  sales 
without  restriction  and  without  paying  any  bonus.  The  by-laws 
provided  for  an  auditor  of  the  association,  whose  duty  it  was  to 
keep  account  of  the  business  done  by  each  shop  both  in  pay  and  free 
territory.  On  the  1st  and  16th  of  each  month,  he  was  required  to 
send  to  each  shop  "a  statement  of  all  shipments  reported  in  the 
previous  half  month,  with  a  balance  sheet  showing  the  total  amount 
of  the  premiums  on  shipments,  the  division  of  the  same,  and  debit, 
credit,  balance  of  each  company."  The  system  of  bonuses,  as  a 
means  of  restricting  competition  and  maintaining  prices,  was  not 
successful.  A  change  was  therefore  made  by  which  prices  were  to 
be  fixed  for  each  contract  by  the  association,  and,  except  in  reserved 
cities,  the  bidder  was  determined  by  competitive  bidding  of  the 
members,  the  one  agreeing  to  give  the  highest  bonus  for  division 
among  the  others  getting  the  contract.  The  plan  was  embodied 
in  a  resolution  passed  May  27,  1895,  in  the  words  following: 
"Whereas,  the  system  now  in  operation  in  this  association  of  hav- 
ing a  fixed  bonus  on  the  several  states  has  not,  in  its  operation,  re- 
sulted in  the  advancement  in  the  prices  of  pipe,  as  was  anticipated, 
except  in  reserved  cities,  and  some  further  action  is  imperatively 
necessary  in  order  to  accomplish  the  ends  for  which  this  association 
was  formed:  Therefore,  be  it  resolved,  that  from  and  after  the 
first  day  of  June,  that  all  competition  on  the  pipe  lettings  shall 
take  place  among  the  various  pipe  shops  prior  to  the  said  letting. 
To  accomplish  this  purpose  it  is  proposed  that  the  six  competitive 
shops  have  a  representative  board  located  at  some  central  city, 
to  whom  all  inquiries  for  pipe  shall  be  referred,  and  said  board 
shall  fix  the  price  at  which  said  pipe  shall  be  sold,  and  bids  taken 
from  the  respective  shops  for  the  privilege  of  handling  the  order, 
and  the  party  securing  the  order  shall  have  the  protection  of  all 
the  other  shops."  In  pursuance  of  the  new  plan,  it  was  further 
agreed  "that  all  parties  to  this  association,  having  quotations 
out,  shall  notify  their  customers  that  the  same  will  be  withdrawn 
by  June  1,  1895,  if  not  previously  accepted,  and  upon  all  business 
accepted  on  and  after  June  1st  bonuses  shall  be  fixed  by  the  com- 
mittee."   At  the  meeting  of  December  19,  1895,  it  was  moved  and 


Pools  and   Associations  209 

carried  that,  upon  all  inquiries  for  prices  from  "reserved  cities" 
for  pipe  required  during  the  year  of  1896,  prices  and  bonuses  should 
be  fixed  at  a  regular  or  called  meeting  of  the  principals.  At  the 
meeting  of  December  20,  1895,  the  plan  for  division  of  bonuses 
originally  adopted  was  modified  by  making  the  basis  the  total 
amounts  shipped  into  "pay"  territory  rather  than  the  totals 
shipped  into  "pay"  and  "free"  territory. 

Exhibit  5 

extracts  from  the  constitution  and  by-laws  of  the  coal 
dealers'  association  of  california  1 

"Article  1.  Title  and  Object,  (a)  The  title  of  this  organization 
shall  be  the  'Coal  Dealers'  Association  of  California,'  with  prin- 
cipal place  of  business  in  San  Francisco,  (b)  It  shall  have  for  its 
object  the  furnishing  of  information  to  its  members  as  to  sales  of 
coal  made  by  wholesale  dealers  to  the  retail  dealers,  and  by  retail 
dealers  to  consumers,  and  also  the  names  of  any  dealers  who  have 
been  guilty  of  violating  any  of  the  rates  or  rules  made  from  time  to 
time  by  this  organization,  and  the  furnishing  of  as  complete  a  list 
as  possible  of  delinquent  consumers,  and  such  other  matters  as 
may  be  decided  upon. 

"Art.  2.  What  Constitutes  a  Dealer,  (a)  Any  person  who  en- 
gages in  the  sale  of  coal  as  regular  business,  buying  to  sell  again, 
who  shall  own  and  operate  a  yard,  keeping  an  office,  and  displaying 
a  sign,  shall  be  regarded  as  a  retail  dealer,  (b)  All  miners  and 
shippers  shall  be  eligible  to  membership  in  this  association,  pro- 
vided such  miner  and  shipper  shall  not  make  a  practice  of  selling 
coal,  at  retail,  at  less  price  than  the  retail  dealers." 

"Art.  4.  Fees — Dues — Assessments,  (a)  The  admittance  fee  for 
membership  shall  be  two  hundred  (200)  dollars,  and  must  invari- 
ably accompany  the  application,  (b)  The  amount  of  dues  shall 
be  fifty  cents  per  month,  payable  quarterly  in  advance,  and  to  date 
from  the  first  day  of  the  month  following  the  month  in  which  the 
member  was  admitted,  (c)  Assessments  may  be  levied  by  a  two- 
thirds  vote  of  the  members  present  at  a  regular  meeting,  but  only 

1  United  States  v.  Coal  Dealers'  Association  of  California.  85  Fed.  252. 
Cf.  pp.  254  ff.  This  combination  was  organized  September  nth,  1896,  by  the 
retail  coal  dealers  of  San  Francisco.  Another  agreement  was  entered  into  be- 
tween this  Association  and  Wholesale  dealers  of  the  same  City.  A  temporary 
injunction  against  this  combination  was  granted  by  the  court. — Ed. 


210  Industrial  Combinations  and  Trusts 

in  such  cases  when  the  interests  of  the  association  as  a  business 
society  require  it.  (d)  No  assessment  shall  be  levied  unless  it  is 
expressed  in  the  notice  of  meeting  that  '  a  resolution  to  levy  an 
assessment  will  be  introduced.'" 

"Art.  6.  Failure  to  Pay  Dues,  Assessments,  or  Fines — Charges — 
Right  of  Appeal,  (a)  If  any  member  shall  neglect  or  refuse  to 
pay  the  monthly  dues  and  assessments  as  provided  in  the  consti- 
tution and  the  by-laws  of  this  association  within  three  days  after 
the  same  have  become  due,  he  or  they  shall  no  longer  be  considered 
members  of  this  association,  or  participant  in  its  benefits,  and 
shall  surrender  certificate  of  membership;  but  a  written  or  printed 
notice  must  be  sent,  at  the  expiration  of  said  time,  to  all  those 
members  who  are  delinquent,  and  may  be  reinstated  within  ten 
days  thereafter  by  paying  in  full  all  dues." 

by-laws 


"Sec.  4.  Standing  Committees,  (a)  A  grievance  committee  con- 
sisting of  three  persons  shall  be  appointed  by  the  president,  from 
the  board  of  directors,  on  the  first  Monday  of  every  month,  to 
serve  without  compensation  until  the  first  Monday  of  the  follow- 
ing month,  or  until  their  successors  are  appointed.  They  shall 
assemble  whenever  requested  to  do  so  by  the  secretary,  and  re- 
ceive and  investigate  all  charges  of  violation  of  card  rules  or  rates 
preferred  against  any  coal  dealer  or  agent  in  the  city  and  county 
of  San  Francisco,  and  report  their  findings  to  the  secretary.  They 
shall  have  the  power  to  fix  the  time  limit  for  the  payment  of  any 
fines  imposed  by  them " 

"Sec.  9.  Advertising,  Circulars,  etc.  (a)  Dealers  in  advertising 
coal  are  not  permitted  to  state  prices  without  adding  the  names 
of  coal  to  be  had  for  the  prices  named;  both  names  and  prices  to 
correspond  exactly  with  those  on  rate  card,  (b)  Any  circulars, 
posters,  dodgers,  cards,  or  signs  conflicting  with  the  card  rates  or 
rules  displayed,  found  on  the  streets  or  circulated  in  any  manner 
whatsoever,  shall  subject  the  dealer  or  agent,  who  caused  their 
distribution,  to  the  penalties,  as  are  provided  in  section  13  of  these 
by-laws  for  selling  coal  in  violation  of  card  rates  or  rules. 

"Sec.  11.  New  Yards.  Any  member  opening  a  new  yard  or 
yards  after  June  14th,  1895,  in  addition  to  the  one  that  secured  his 


Pools   and   Associations  211 

admission  in  the  association,  shall  be  liable  for  an  additional  two 
hundred  (200)  dollars  admittance  fee  and  monthly  dues  for  each 
yard  so  opened,  in  order  for  such  yard  or  yards  to  participate  in 
the  benefits  of  the  association. 

"Sec.  12.  Standard  Rules  and  Weights,  (a)  No  dealer  shall 
give  more  or  less  than  100  pounds  to  1  sack;  500  pounds  to  5  sacks, 
or  34  ton  (short);  1,000  pounds  to  10  sacks,  or  3/2  ton  (short); 
2,000  pounds  to  20  sacks,  or  1  ton  (short);  2,240  pounds  to  1  ton 
(long),  (b)  All  long  tons  must  be  delivered  in  bulk.  Names  of 
coal  must  appear  on  bill  exactly  as  they  read  on  rate  card.  A  load 
of  coal  delivered  in  bulk  shall  be  per  ton  of  2,240  pounds.  If 
handled  after  arrival  at  customer's  place,  an  additional  charge  of 
fifty  cents  per  ton  must  be  made.  A  ton  of  coal  delivered  in  twenty 
sacks,  and  put  in  bin,  shall  be  2,000  pounds.  No  premiums  or 
presents  are  permitted  to  be  offered  as  inducements  for  purchasers 
to  buy  coal,  (c)  Dealers  shall  be  permitted  to  sell  and  deliver  fifty 
pounds  of  coal  at  one  half  card  rates  for  one  hundred  pounds,  but 
in  no  case  shall  they  be  allowed  to  sell  coal  in  quantities  ranging 
between  fifty  pounds  and  one  hundred  pounds. 

"Sec.  13.  Violations — Penalties,  (a)  If  a  dealer  or  agent,  mem- 
ber or  non-member,  be  found  guilty  of  selling  coal  in  violation  of 
the  card  rates  or  rules,  he  shall  be  subject  to  a  fine  of  not  less 
than  ten  (10)  dollars  nor  more  than  one  hundred  (100)  dollars  for 
the  first  offense,  not  less  than  twenty-five  (25)  dollars  nor  more 
than  two  hundred  (200)  dollars  for  the  second  offense;  if  a  member 
of  the  association,  be  suspended  and  compelled  to  pay  retail  prices 
for  third  offense  until  restored  to  membership  in  good  standing 
by  the  board  of  directors.     ... 

Exhibit  6 
structural  steel  association  of  the  united  states  ! 

This  agreement,  made  and  entered  into  this  1st  day  of  January, 
1897,  by  and  between  the  Passaic  Rolling  Mill  Co.,  Pottsville  Iron 
&  Steel  Co.,  A.  &  P.  Roberts  Co.,  Cambria  Iron  Co.,  Phoenix  Iron 
Co.,  New  Jersey  Steel  &  Iron  Co.,  Universal  Construction  Co.,  the 
Carnegie  Steel  Co.  (Ltd.),  Cleveland  Rolling  Mill  Co.,  Jones  & 
Laughlin  Steel  Co.  (Ltd.), 

1  United  States  of  America  v.  United  States  Steel  Corporation.  Petition,  In 
the  Circuit  Court  of  the  United  States  for  the  District  of  New  Jersey,  Exhibit  B, 
pp.  76-82. 


212  Industrial  Combinations  and  Trusts 

Witnesseth  that  the  above  said  parties  have  mutually  agreed  to 
and  with  each  other  to  form  an  association  to  be  known  as  the 
Structural  Steel  Association  of  the  United  States. 

First.  Each  of  the  above  parties  named,  being  manufacturers  and 
sellers  of  steel  I  beams  and  channels  of  sizes  not  less  than  3  inches  in 
depth,  shall,  by  reason  of  such  manufacture  and  sale,  be  entitled  to 
membership  in  this  association,  and  each  of  the  parties  hereto  shall 
be  entitled  to  such  portion  of  all  sales  by  parties  hereto  of  I  beams 
and  channels  of  sizes  not  less  than  3  inches  in  depth  (except  I  beams 
and  channels  for  use  in  car  construction  and  deck  or  bulb  beams) 
as  is  allotted  to  it  under  the  following  table: 

Per  cent. 

The  Carnegie  Steel  Co.  (Ltd.) 49  f 

Jones  &  Laughlin  (Ltd.) 12  f 

A.  &  P.  Roberts  Co 11  \ 

Passaic  Rolling  Mill  Co 6 

Phoenix  Iron  Co 5 

Cambria  Iron  Co 5 

Universal  Construction  Co 4  j 

Pottsville  Iron  &  Steel  Co 3 

Cleveland  Rolling  Mill  Co 3 


100 


It  being  understood  that  members  of  this  association  having 
bridge  works  wherein  beams  and  channels,  as  covered  by  this  agree- 
ment, are  consumed  shall  report  to  this  association  all  shipments  to 
such  departments  and  pay  the  agreed  pool  tax  as  hereinafter  pro- 
vided on  shipments  so  made  (except  such  as  are  used  in  the  con- 
struction of  buildings  for  their  own  respective  works  which  tonnage 
shall  be  reported  and  credit  given  therefor). 

Second.  The  officers  of  this  association  shall  be  as  follows:  A 
president,  a  treasurer,  a  commissioner  and  an  executive  committee, 
consisting  of  three  members  (the  president  being  a  member  of  the 
executive  committee,  ex  officio). 

Third.  Each  member  of  this  association  (the  New  Jersey  Steel 
&  Iron  Co.  excepted),  shall,  on  or  before  the  10th  day  of  February, 
1897,  and  on  and  before  the  10th  day  of  each  and  every  month 
thereafter,  during  the  terms  of  this  agreement,  or  any  extension 
thereof,  render  to  the  commissioner  of  this  association,  a  statement, 
which  statement  shall  be  sworn  to  or  affirmed  to  by  one  of  the  prin- 


Pools   and   Associations  213 

cipal  executive  officers  of  the  member  so  making  the  report,  or  in 
case  the  member  so  making  the  report  is  a  copartnership,  then,  in 
that  case,  the  report  shall  be  sworn  to  or  affirmed  to  by  one  of  the 
firm  holding  membership  in  this  association  which  oath  or  affirma- 
tion shall  be  to  the  effect  that  the  report  so  made,  is  a  true  and 
correct  report  of  all  the  material  described  in  the  first  clause  of  this 
agreement  which  was  shipped  by  the  member  making  the  report 
during  the  month  for  which  the  report  is  made;  the  form  of  the  re- 
port and  oath  or  affirmation  as  to  its  correctness,  shall  be  furnished 
by  the  commissioner.  And  upon  the  commissioner's  receiving  from 
the  respective  members  their  reports,  as  aforesaid,  he,  the  commis- 
sioner, shall  render  to  each  member  monthly,  as  soon  as  possible 
after  the  receipt  of  all  the  statements  of  all  the  members,  copies  of 
statements  last  rendered  by  each  member,  and  shall  forthwith 
"state  an  account,"  charging  each  member,  who  has  shipped  during 
the  month  more  than  its  or  their  percentage  of  the  total  amount 
shipped  by  all  the  members  of  the  association,  the  sum  of  five-tenths 
cents  per  pound  on  each  and  every  pound  of  such  excess  and  credit- 
ing each  member  who  has  not  shipped  its  or  their  percentage  of  the 
total  amount  shipped  by  all  the  members  of  the  association  with 
the  sum  of  five-tenths  cents  per  pound  on  each  and  every  pound 
which  it  or  they  fail  to  ship  during  the  month  for  which  the  reports 
are  made,  as  aforesaid,  and  as  a  basis  of  calculation  in  making  such 
"statement  of  account,"  the  commissioner  shall  use  the  table  of 
percentages  as  set  forth  in  the  first  clause  of  this  agreement. 

And  upon  the  statement  of  such  account  by  the  commissioner,  he 
shall  immediately  mail  a  copy  thereof  to  each  member  of  this 
association  and  within  five  days  after  the  receipt  of  any  account  by 
the  member  of  this  association,  which  account  shall  show  that  the 
member  receiving  the  same  is  indebted  to  the  association,  the  mem- 
ber so  receiving  its  or  their  account  showing  its  or  their  indebted- 
ness, shall  forward  to  the  treasurer  a  check  or  sight  draft  drawn  to 
the  order  of  T.  Mellon  &  Sons,  in  payment  of  such  indebtedness, 
which  check  or  sight  draft  the  treasurer  shall  deposit  in  the  said 
T.  Mellon  &  Sons'  bank  to  the  credit  of  this  association,  and  im- 
mediately upon  the  treasurer  receiving  from  the  members  all  their 
respective  remittances,  in  payment  of  their  indebtedness  to  the 
association,  for  any  month,  he,  the  treasurer,  shall  notify  the  re- 
spective members  whom  the  aforesaid  "account  stated"  shall  show 
to  be  creditors  of  the  association  for  any  month,  to  draw  on  him 
(the  treasurer)  for  the  amount  due  to  them  as  shown  by  said  "ac- 


214  Industrial  Combinations  and  Trusts 

count  stated,"  and  upon  receipt  of  their  several  drafts  so  made  the 
treasurer  shall  accept  the  same  payment  at  T.  Mellon  &  Sons',  and 
charge  the  amounts  thereof  to  the  fund  created  by  the  payments 
made  by  the  members  who  shipped  in  excess  of  their  proportion 
during  the  month  for  which  the  "account  stated"  was  made, 
thus  closing  that  account  each  month. 

Fourth.  To  insure  the  rendering  of  the  statements  and  the  settle- 
ment of  the  balances  due  between  the  members  of  this  association, 
at  the  time  required  by  the  provisions  of  this  agreement,  each  mem- 
ber (the  New  Jersey  Steel  &  Iron  Co.  excepted)  shall,  immediately 
after  the  signing  of  this  agreement,  remit  to  the  treasurer  its  or 
their  check  or  sight  draft  for  the  sum  of  $2,500,  and  shall,  on  or 
before  the  10th  day  of  each  month  thereafter,  remit  its  or  their 
check  or  sight  draft  for  $500,  the  said  checks  or  sight  drafts  shall 
be  made  in  favor  of  T.  Mellon  &  Sons,  who  shall  become  the  depos- 
itory of  all  the  proceeds  of  such  checks  or  sight  drafts,  which  shall 
form  a  guaranty  fund  and  be  held  by  said  T.  Mellon  &  Sons  during 
the  continuance  of  this  agreement,  or  any  extension  thereof,  and 
disposed  of  finally  as  hereinafter  provided. 

It  being  understood  that  when  the  said  guaranty  fund  reaches 
the  sum  total  of  $45,000,  that  the  payments  toward  said  fund  shall 
thereupon    cease. 

Fifth.  Whereas  it  has  been  agreed  by  and  between  the  several 
other  members  and  the  New  Jersey  Steel  &  Iron  Co.  that  the  works 
of  the  said  New  Jersey  Steel  &  Iron  Co.  shall  remain  inoperative  in 
the  manufacture  of  I  beams  and  channels,  of  sizes  coming  under  the 
provision  of  and  during  the  life  of  this  agreement,  in  consideration 
of  which  the  New  Jersey  Iron  and  Steel  Co.  shall  receive  from  this 
association  the  sum  of  $5,000  per  month.  Said  sum  of  $5,000  to  be 
paid  by  the  several  other  members  in  proportion  to  their  allotments 
as  shown  by  the  table  in  the  first  clause  of  this  agreement.  On  the 
tenth  day  of  each  month  the  treasurer  shall  draw  at  sight  on  the 
respective  parties  to  this  agreement  for  the  proportionate  amount 
of  the  indebtedness,  and  when  all  such  drafts  shall  have  been  paid, 
he  shall  immediately  notify  the  New  Jersey  Steel  &  Iron  Co.  to 
draw  upon  him  at  sight  for  the  sum  of  $5,000,  thus  closing  this 
account  each  month.  In  case  any  draft  which  the  treasurer  shall 
make,  as  in  this  clause  provided,  shall  not  be  promptly  paid,  the 
amount  of  such  draft  shall  be  taken  from  the  deposition  the  guar- 
antee fund  of  the  party  failing  to  pay  such  draft,  and  payment 
made  to  the  New  Jersey  Steel  &  Iron  Co.,  the  same  as  if  all  such 


Pools  and   Associations  215 

drafts  of  the  treasurer  has  been  paid,  and  such  party  shall  imme- 
diately remit  to  the  treasurer  an  amount  sufficient  to  make  good  the 
sum  so  taken  from  the  guarantee  fund.1 

Sixth.  Whereas  it  has  been  agreed  by  and  between  all  the  mem- 
bers of  this  association  (the  New  Jersey  Steel  &  Iron  Co.  excepted) 
to  exempt  all  members  except  the  Phoenix  Iron  Co.,  to  the  extent 
of  5  per  cent  of  300,000  tons,  in  the  proportions  expressed  in  the 
table  of  allotments  contained  in  clause  1  of  this  agreement;  the 
aforesaid  Phoenix  Iron  Co.  to  be  exempted  to  the  amount  of  11,000 
tons;  the  pool  assessment  shall  not  be  charged  on  any  member's 
shipments  until  it  or  they  shall  have  completed  its  or  their  quoto  2  of 
exempted  tonnage. 

Seventh.  It  is  required  that  all  I  beams  and  channels  shipped 
into  the  States  bordering  on  the  Pacific  coast  and  to  be  actually 
used  in  the  territory  into  which  it  is  shipped  and  also  all  I  beams  and 
channels  actually  exported  for  use  outside  the  limits  of  the  United 
States  be  reported  to  the  commissioner  together  with  bills  of  lading 
or  other  evidence  of  exportation  satisfactory  to  him  (said  evidence 
to  be  confidential  and  not  to  be  circulated  among  the  members). 
Such  tonnage  will  be  deducted  from  the  member's  report  and  the 
agreed  pool  tax  charged  on  the  balance. 

Eighth.  Upon  receiving  the  written  request  of  any  one  member 
of  the  association  the  commissioner  shall  call  a  meeting  of  the 
parties  to  this  agreement,  to  be  held  within  five  days  from  the  date 
of  his  receiving  such  written  request. 

Ninth.  If  at  any  time  any  of  the  parties  hereto  shall  have  reason 
to  suppose  that  any  other  party  or  parties  to  the  agreement  have 
violated  any  of  the  provisions  of  this  agreement,  the  said  party  so 
supposing  the  agreement  has  been  violated  shall  file  with  the  com- 
missioner of  the  association  a  bill  of  complaint  against  the  party 
or  parties  so  suspected  of  such  violation,  which  bill  of  complaint 
shall  fully  set  forth  the  act  or  acts  complained  of,  together  with  all 
the  matters  or  things  connected  therewith.  The  said  bill  of  com- 
plaint shall  be  in  writing  and  shall  furnish  all  the  evidence  that  can 
be  submitted  in  connection  with  the  alleged  violation,  and  upon 
receipt  by  the  commissioner  of  any  and  all  bills  of  complaint  as 
aforesaid,  he  shall  forthwith  use  Ins  best  offices  to  have  the  accuser 
and  accused  arrive  at  an  amicable  settlement,  failing  in  which,  he 
shall  submit  all  the  information  he  may  have  to  the  executive  com- 

1  This  sentence  is  thus  in  the  original. — -Ed. 

2  Thus  in  the  original. — Ed. 


216  Industrial  Combinations  and  Trusts 

mittee  for  action.  If  the  said  executive  committee  shall  determine 
that  the  charges  have  been  sustained,  they,  the  executive  com- 
mittee, shall  impose  a  penalty  not  less  than  $1,000,  nor  more  than 
the  amount  standing  to  the  credit  of  the  member  so  punished  in 
the  guaranty  fund  at  the  time  the  fine  is  imposed  upon  the  party  so 
adjudged  as  having  violated  the  agreement,  but  if  the  executive 
committee  shall  determine  that  the  charges  have  not  been  sustained 
they  shall  dismiss  the  complaint  from  further  consideration  by 
them.  It  being  further  understood  and  agreed  that  no  member  of 
the  executive  committee  shall  act  upon  any  bill  of  complaint  made 
by  or  made  against  the  member  of  the  association  which  he  repre- 
sents, nor  shall  any  representative  of  a  member  of  the  association 
vote  upon  any  bill  of  complaint  brought  by  or  brought  against  the 
member  of  the  association  which  he  represents.  Any  penalty  im- 
posed by  the  executive  committee  will  be  collected  by  the  treasurer, 
deducting  the  amount  thereof  from  the  deposit  made  by  the  mem- 
ber against  whom  the  penalty  is  imposed  to  the  guaranty  fund,  as 
provided  for  in  clause  fourth  of  this  agreement,  within  two  weeks 
after  such  penalty  is  thus  imposed,  the  sum  thereof  shall  be  trans- 
ferred pro  rata  as  per  allotments  to  the  accounts  of  the  members 
of  the  association,  excluding  the  member  against  whom  the 
penalty  is  imposed,  by  the  treasurer  of  the  association,  in 
which  case  the  member  so  punished  shall  immediately  remit  an 
amount  sufficient  to  make  good  the  sum  taken  from  the  guaranty 
fund. 

In  case  the  offending  member  should  appeal  to  the  association 
and  the  action  of  the  executive  committee  should  not  be  sustained 
by  a  majority  vote  of  said  association,  then  the  fine  imposed  shall 
be  remitted  and  any  sum  that  the  member  may  have  paid  into  the 
association  by  reason  of  this  shall  be  returned. 

Tenth.  No  member  of  this  association  (the  New  Jersey  Steel  & 
Iron  Co.  excepted)  shall  make  any  lump-sum  bid,  nor  shall  they  or 
it  erect  any  building,  directly  or  indirectly.  This  applies  only  to 
members  as  "Rolling  Mills."  Any  question  arising  as  to  the  inter- 
pretation of  this  clause  shall  be  referred  to  the  commissioner  for 
his  immediate  decision. 

Eleventh.  No  consideration  in  the  nature  of  brokerage  or  com- 
mission is  to  be  allowed,  except  to  the  accredited  agents  of  the 
parties  to  this  agreement,  whose  names  shall  be  on  file  with  the 
commissioner;  and  in  no  case  will  it  be  permissible  for  such  com- 
mission to  be  divided. 


Pools   and   Associations  217 

No  sales  or  contracts  shall  be  made  to  or  with  middlemen  except 
on  specific  work  for  immediate  specifications. 

All  sales  between  parties  to  this  agreement  shall  be  at  pool  prices, 
as  provided  in  agreement  "B,"  and  all  shipments  shall  be  reported 
by  the  manufacturer,  on  which  the  pool  tax  will  be  charged  the 
same  as  to  outside  parties,  the  purchaser  also  to  report  shipments 
of  all  such  material  so  bought,  for  which  they  shall  claim  and 
receive  credit. 

Twelfth.  At  any  meeting  of  the  members  of  this  association, 
called  by  the  commissioner  as  herein  provided,  any  party  or  parties 
may  give  notice  of  withdrawal  herefrom,  but  no  such  notice  shall 
take  effect  until  January  1,  1898.  If  the  aggregate  pool  percent- 
ages of  the  parties  giving  such  notice  of  withdrawal  shall  amount 
to  less  than  4  per  cent,  this  agreement  shall  continue  in  force  as 
between  the  remaining  parties,  but  if  such  aggregate  shall  amount 
to  4  per  cent  or  more  this  agreement  shall  terminate  at  the  time 
so  fixed.  But  statements  shall  continue  to  be  rendered  of  all  I 
beams  and  channels  shipped  up  to  date  of  its  termination,  the 
pool  assessment.1 

Thirteenth.  The  percentages  of  the  parties  hereto  or  of  their 
successors  (including  as  such  any  concern  mainly  owned  or  con- 
trolled by  any  of  the  said  parties  or  any  of  their  stockholders), 
shall  be  maintained  in  the  same  relative  proportion  until  other- 
wise agreed,  and  if  any  party  shall  at  any  time  have  more  than  one 
successor  or  allied  concern,  the  aggregate  percentages  allotted  to 
itself  and  all  its  successors  and  allied  concerns  shall  not  exceed 
the  percentage  that  the  original  concern  would  have  been  entitled 
to  if  it  had  continued  alone  its  relations  to  the  other  parties  under 
this  agreement,  and  the  parties  thereto  shall  include  in  their  state- 
ment the  shipments  for  such  successors  and  allied  concerns. 

Fourteenth.  In  case  other  firms  or  corporations  are  admitted  as 
partners  to  this  agreement,  the  percentage  of  the  pool  allotted  to 
each  shall  be  deducted  pro  rata  from  the  percentages  of  the  members 
immediately  prior  to  the  time  of  its  admission;  and  in  case  any  of 
the  parties  hereto  or  any  of  the  parties  hereafter  admitted  shall 
withdraw,  the  percentage  of  the  pool  allotted  to  such  withdrawing 
party  or  parties  shall  be  added  pro  rata  to  the  percentages  of  the 
parties  remaining.  In  such  case  the  commissioner  shall  compute 
and  report  the  new  percentages  to  the  nearest  one-hundredth  of 
one  per  cent,  which  degree  of  accuracy  shall  be  deemed  sufficient. 
1  This  sentence  is  thus  in  the  original. — Ed. 


218  Industrial  Combinations  and  Trusts 

Fifteenth.  The  allotment  herein  made  of  percentages,  the  amount 
of  the  guaranty  fund,  and  the  payment  made  to  the  New  Jersey 
Steel  &  Iron  Co.,  as  herein  provided,  shall  not  be  altered,  amended, 
or  changed  in  any  respect,  except  by  the  unanimous  consent  of 
all  the  parties  to  this  agreement,  but  any  other  matters  or  things 
whatsoever  which  concern  this  agreement  or  the  association  formed 
thereby  or  any  regulations  hereafter  adopted,  may,  at  any  time,  be 
abrogated  or  amended  or  altered  at  any  meeting  of  the  members 
of  this  association,  provided  that  two-thirds  of  the  members  of  the 
association  are  present  thereat,  that  they  represent  at  least  two- 
thirds  of  the  percentage  allotted  to  all,  and  vote  in  favor  thereof. 

Sixteenth.  To  provide  for  the  prompt  payment  of  all  salaries, 
rents,  and  other  expenses  (except  the  payment  which  is  to  be  made 
monthly  to  the  New  Jersey  Steel  &  Iron  Co.),  a  general  expense 
fund  shall  be  called  in  as  needed  by  the  treasurer  in  proportion  to 
the  percentage  allotted  each  member  in  the  association. 

Seventeenth.  No  matter  of  account  or  understanding  outside  of 
this  agreement  shall  affect  the  settlements  herein  provided  for, 
either  as  an  offset  or  otherwise,  nor  shall  any  written  or  unwritten 
agreement  of  the  parties  hereto,  or  any  of  them,  to  establish  and 
maintain  uniformity  in  prices,  or  any  controversy  arising  out  of 
such  agreement,  or  any  failure  to  carry  out  any  of  its  provisions, 
or  to  maintain  prices,  affect  in  any  way  the  rendering  of  the  state- 
ments and  the  making  of  the  settlements  therein  required. 

Eighteenth.  Whenever  this  agreement  shall  have  been  termi- 
nated the  balance  of  the  deposit,  with  accumulated  interest,  remain- 
ing in  the  hands  of  the  treasurer  to  the  credit  of  each  party,  after 
provision  shall  have  been  made  for  the  payment  of  all  expenses, 
shall  be  returned  to  it,  provided  it  shall  have  rendered  all  the  state- 
ments required  from  it  under  this  agreement  and  have  paid  all  its 
debtor  balances.  In  case  any  party  hereto  shall  not  have  fulfilled 
its  money  obligations  under  this  agreement,  the  amount  it  has  on 
deposit  in  the  guarantee  fund  shall  be  applied  toward  the  fulfill- 
ment of  those  obligations,  and  the  excess,  if  any,  returned  to  it. 
But  in  case  any  party  shall  not  have  fulfilled  its  agreement  to 
render  the  monthly  statements  under  this  agreement,  the  amount 
it  has  on  deposit  in  the  guarantee  fund,  or  the  excess  thereof,  as 
above  stated,  shall  be  divided  among  the  parties  who  shall  have 
fulfilled  their  obligations  under  this  agreement,  in  the  proportion 
of  their  respective  percentages. 

Nineteenth.  At  the  expiration  of  this  agreement,  or  at  any  time 


Pools  and  Associations  219 

the  president  of  the  association,  together  with  the  majority  of  the 
executive  committee,  determine  that  it  is  advisable  that  all  or  any 
part  of  any  funds  belonging  to  the  association  shall  be  withdrawn 
from  the  depository  then  holding  the  same,  upon  notification  by  the 
present  and  a  majority  of  the  executive  committee  of  such  deter- 
mination being  given  the  treasurer,  he,  the  treasurer,  shall  make  and 
sign  a  sight  draft  or  check  upon  the  depository  so  holding  such  funds 
for  the  sum  named  in  such  notification,  which  check  or  sight  draft 
shall  then  be  countersigned  by  the  president  or  one  member  of  the  ex- 
ecutive committee,  and  when  such  checks  or  sight  drafts  are  so  made 
and  signed  by  the  treasurer  and  countersigned  by  the  president  or 
one  member  of  the  executive  committee  and  duly  presented  for  pay- 
ment at  the  office  of  the  depository  holding  the  funds  of  the  associa- 
tion, all  such  checks  and  sight  drafts  shall  be  paid  by  such  depository. 

Twentieth.  For  all  purposes  of  this  agreement  a  ton  shall  be  taken 
and  held  of  2,000  pounds. 

In  witness  whereof  the  parties  hereto  have  signed  this  agreement 
the  day  and  year  first  above  written. 

Exhibit  7 

the  steel  plate  association  l 

This  Agreement,  made  and  entered  into  this  ninth  day  of  No- 
vember, 1900,  by  and  between: 

Carnegie  Steel  Company. 

Jones  &  Laughlins,  Limited. 

Illinois  Steel  Company. 

Crucible  Steel  Company. 

Otis  Steel  Company. 

Tidewater  Steel  Company. 

Lukens  Iron  &  Steel  Company. 

Worth  Bros.  Company. 

Central  Iron  &  Steel  Company. 

The  American  Steel  &  Wire  Company. 

The  Glasgow  Iron  Company. 

Witnesseth  :  That  the  above  said  parties  have  mutually  agreed 

to  and  with  each  other  to  form  an  Association  for  mutual  interests, 

and  to  enable  them  to  pay  liberal  wages  to  their  workmen,  to  be 

known  as  The  Steel  Plate  Association  of  the  United  States. 

1  United  States  of  America  v.  United  States  Steel  Corporation.  Petition,  Ex- 
ibit  A,  pp.  70-75. 


220  Industrial  Combinations  and  Trusts 

First:  Each  of  the  parties  above  named  being  manufacturers  and 
sellers  of  steel  plates,  shall  by  reason  of  such  manufacture  and  sale, 
be  entitled  to  membership  in  this  Association,  and  each  of  the  par- 
ties hereto  shall  be  entitled  to  portion  of  all  shipments  in  the  follow- 
ing proportions: 

Carnegie  Steel  Company 46.25 

Jones  &  Laughlins,  Limited 4.75 

Illinois  Steel  Company 11.00 

Crucible  Steel  Company  of  America 4.50 

Otis  Steel  Company 2.50 

Tidewater  Steel  Company 3.00 

Lukens  Iron  &  Steel  Company 7.50 

Worth  Bros.  Company 7.00 

Central  Iron  &  Steel  Company 8.00 

American  Steel  &  Wire  Company 5.50 

Glasgow  Iron  Company  to  the  extent  of  sales  and  out- 
put up  to  40,000  tons,  should  they  be  able  to  accom- 
plish them,  prior  to  December  31st,  1901. 

Second:  The  officers  of  this  Association  shall  be  as  follows:  a 
President,  a  Treasurer,  a  Commissioner  and  an  Executive  Com- 
mittee consisting  of  six  members,  including  the  President.  The 
conclusions  of  all  the  Executive  Committee  meetings  shall  be  at 
once  communicated  to  all  members  of  this  Association. 

Third:  Each  member  of  this  Association  shall,  on  or  before  the 
tenth  day  of  December,  1900,  and  on  or  before  the  tenth  day  of 
every  month  thereafter  during  the  term  of  this  Agreement,  or  any 
extension  thereof,  render  to  the  Commissioner  of  this  Association, 
a  statement,  which  statement  shall  be  sworn  to,  or  affirmed  to,  by 
one  of  the  principal  Executive  officers  of  the  member  so  making  the 
report,  or  in  case  the  member  so  making  the  report  is  a  co-partner- 
ship, then,  in  that  case,  the  report  shall  be  sworn  to,  or  affirmed  to, 
by  one  of  the  firm  holding  membership  in  this  Association,  which 
oath  or  affirmation  shall  be  to  the  effect  that  the  report  so  made, 
is  a  true  and  correct  report  of  all  the  material  described  in  the  First 
Clause  of  this  Agreement,  which  was  shipped  by  the  member  mak- 
ing the  report  during  the  month  for  which  the  report  is  made;  the 
form  of  the  report,  and  oath  of  affirmation  as  to  its  correctness,  shall 
be  furnished  by  the  Commissioner,  and  shall  include  a  statement  of 
the  rolling  production  for  each  month;  and  upon  the  Commissioner's 
receiving  from  the  respective  members  their  reports,  as  afore- 


Pools  and  Associations  221 

said,  he  the  Commissioner,  shall  render  to  each  member  monthly, 
as  soon  as  possible  after  the  receipt  of  all  the  statements  of  all 
the  members,  copies  of  statements  last  rendered  by  each  member, 
and  shall  forthwith  "State  an  Account,"  charging  each  member, 
who  has  shipped  during  the  month  more  than  its  or  their  percentage 
of  the  total  amount  shipped  by  all  the  members  of  the  Association, 
the  sum  of  Thirty-five  hundredths  of  a  cent  (.35c)  per  pound  on 
each  and  every  pound  of  such  excess,  and  crediting  each  member 
who  has  not  shipped  its  or  their  percentage  of  the  total  amount 
shipped  by  all  members  of  the  Association,  with  the  sum  of  thirty- 
five  hundredths  of  a  cent  (.35c)  per  pound  on  each  and  every  pound 
with  which  it  or  they  fail  to  ship  during  the  month  for  which  the 
reports  are  made,  as  aforesaid,  and  as  a  basis  of  calculation  making 
such  "Statement  of  Account,"  the  Commissioner  shall  use  the  ta- 
ble of  percentages  as  set  forth  in  the  First  Clause  of  this  Agreement; 
and  upon  the  Statement  of  any  such  account  by  the  Commissioner, 
he  shall  immediately  mail  a  copy  thereof  to  each  member  of  this 
Association,  and  within  five  days  after  the  receipt  of  any  account  by 
the  member  of  this  Association,  which  account  shall  show  that  the 
member  receiving  the  same  is  indebted  to  the  Association,  the  mem- 
ber so  receiving  its  or  their  account,  showing  its  or  their  indebted- 
ness, shall  forward  to  the  Treasurer  a  check  or  sight  draft  drawn  to 
the  order  of  T.  Mellon  &  Sons,  in  payment  of  such  indebtedness 
which  check  or  sight  draft  the  Treasurer  shall  deposit  in  the  said 
Mellon  &  Sons'  Bank,  Pittsburg,  Pa.,  to  the  credit  of  this  Associa- 
tion, and  to  remain  to  the  credit  of  the  member  paying  on  excess 
of  shipments  and  being  increased  or  diminished  as  each  month's 
business  shows.  It  shall  be  the  right  and  privilege  of  each  member, 
who  shall  not  have  shipped  his  full  percentage,  to  call,  through  the 
Commissioner  on  members  who  have  made  an  excess,  to  transfer  to 
the  short  member  a  sufficient  amount  of  tonnage,  or  otherwise 
enable  him  to  fill  up  his  order  book.  It  being  the  intent  of  this 
Agreement  that  each  member  shall  ship  his  entire  percentage,  and 
at  the  end  of  each  year  it  shall  be  the  duty  of  the  Commissioner  to 
so  arrange  between  the  members  as  to  have  the  pool  balanced ;  but 
any  member  unable,  at  the  end  of  each  year,  to  produce  his  allot- 
ment, after  first  deducting  his  exempted  tonnage;  which  shall  be 
divided  among  other  members  of  the  pool,  in  proportion  to  their 
respective  tonnage  allotments. 

Fourth:  To  insure  the  rendering  of  the  statements  and  the  faith- 
ful adherence  of  each  party  to  the  terms  of  this  Agreement,  a  guar- 


222  Industrial  Combinations  and  Trusts 

antec  fund  of  $100,000  shall  be  formed  by  the  payment  on  or  before 
December  3rd,  1900,  of  $1,000  for  each  per  cent,  of  allotment,  as 
provided  for  in  the  First  Clause  of  this  Agreement  to  the  Treasurer, 
which  fund  shall  be  deposited  or  invested  as  directed  by  the  Execu- 
tive Committee  in  trust  for  the  members,  in  the  same  proportion 
as  received.  Subject  however,  to  such  forfeiture  or  penalty  as  may 
be  declared  by  a  vote  of  the  remainder  of  the  members  against  any 
member  violating  the  terms  of  this  Agreement,  as  hereinafter  pro- 
vided. 

Fifth:  Whereas,  it  has  been  agreed  by  and  between  all  the  mem- 
bers of  this  Association  to  exempt  certain  tonnage  to  cover  orders 
already  taken,  it  is  agreed  that  such  exemption  shall  be  as  follows: 

Carnegie  Steel  Company 140,000  tons. 

Jones  &  Laughlins,  Limited 9,400  " 

Illinois  Steel  Company J5,394  " 

Crucible  Steel  Company  of  America 2,687  " 

Otis  Steel  Company 1,740  " 

Tidewater  Steel  Company 2,520  " 

Lukens  Iron  &  Steel  Company 5,778  " 

Worth  Bros.  Company 3,863  " 

The  American  Steel  &  Wire  Company   .......  15,116  " 

Glasgow  Iron  Company 7,965  " 

It  is  understood  that  those  who  hold  exemptions  under  this  agree- 
ment areto  proportionthe  shipments  applying  to  them  in  monthlyal- 
lotments, between  the  date  of  this  Agreement  and  January  1st,  1902, 
and  such  shipments  shall  not  be  subject  to  the  pool  assessment. 

Sixth:  It  is  required  that  all  plates  shipped  into  the  states 
bordering  on  the  Pacific  Coast,  and  to  be  actually  used  in  the  ter- 
ritory into  which  it  is  shipped,  and  also  all  plates  actually  exported 
for  use  outside  the  limits  of  the  United  States,  be  reported  to  the 
Commissioner,  together  with  Bills  of  Lading,  or  other  evidence  of 
exportation,  for  actual  use  abroad,  satisfactory  to  him  (said  evi- 
dence to  be  confidential  and  not  to  be  circulated  among  the  mem- 
bers.) Such  tonnage  will  be  deducted  from  the  member's  report, 
and  the  agreed  pool  tax  charged  on  the  balance. 

Seventh  :  Upon  receiving  the  written  request  of  two  members  of 
the  Association,  stating  the  object,  the  Commissioner  shall,  upon 
the  approval  of  the  Executive  Committee,  call  a  meeting  of  the 
parties  to  this  agreement,  to  be  held  from  five  days  from  date  of 
his  receiving  such  written  request. 


Pools  and  Associations  223 

Eighth:  If  at  any  time  any  of  the  parties  hereto  shall  have  reason 
to  suppose  that  any  other  party  or  parties  to  the  Agreement  have 
violated  any  of  the  provisions  of  this  Agreement,  the  said  party  so 
supposing  the  Agreement  has  been  violated,  shall  file  with  the  Com- 
missioner of  the  Association,  a  Bill  of  Complaint  against  the  party 
or  parties  so  suspected  of  such  violation,  which  Bill  of  Complaint 
shall  fully  set  forth  the  act  or  acts  complained  of,  together  with  all 
the  matters  or  things  connected  therewith;  the  said  Bill  of  Com- 
plaint shall  be  in  writing,  and  shall  furnish  all  the  evidence  that 
can  be  submitted  in  connection  with  the  alleged  violation,  and  upon 
receipt  by  the  commissioner  of  any  and  all  Bills  of  Complaint,  as 
aforesaid,  he  shall  forthwith  use  his  best  offices  to  have  the  accuser 
and  accused  arrive  at  an  amicable  settlement,  failing  in  which,  he 
shall  then  submit  all  the  information  he  may  have  to  the  Executive 
Committee  for  action ;  if  the  said  Executive  Committee  shall  deter- 
mine that  the  charges  have  been  sustained  they,  the  Executive 
Committee,  shall  impose  a  penalty  of  not  less  than  One  Thousand 
Dollars,  nor  more  than  the  amount  standing  to  the  credit  of  the 
member,  so  punished,  in  the  Guarantee  Fund  at  the  time  the  fine  is 
imposed  upon  the  party  so  adjudged  as  having  violated  the  Agree- 
ment, but,  if  the  Executive  Committee  shall  determine  that  the 
charges  have  not  been  sustained,  they  shall  dismiss  the  complaint 
from  further  consideration  by  them.  It  is  further  understood  and 
agreed  that  no  member  of  the  Executive  Committee  shall  act  upon 
any  Bill  of  Complaint  made  by,  or  made  against  the  member  of  the 
Association  which  he  represents  nor  shall  any  representative  of  a 
member  of  the  Association  vote  upon  any  Bill  of  Complaint  brought 
by  or  brought  against  the  member  of  the  Association  he  represents. 
Any  penalty  imposed  by  the  Executive  Committee  will  be  collected 
by  the  Treasurer,  deducting  the  amount  therefrom  the  deposit 
made  by  the  member,  against  whom  the  penalty  is  imposed,  to  the 
Guarantee  Fund,  as  provided  for  in  Clause  Fourth  of  this  Agree- 
ment, within  two  weeks  after  such  penalty  is  thus  imposed,  the 
sum  thereof  shall  be  transferred  pro  rata  as  per  allotments  to  the 
accounts  of  the  members  of  the  Association  excluding  the  member 
against  whom  the  penalty  is  imposed,  by  the  Treasurer  of  the 
Association,  in  which  case  the  member  so  punished  shall  immedi- 
ately remit  an  amount  sufficient  to  make  good  the  sum  taken  from 
the  Guarantee  Fund. 

In  case  the  offending  member  shall  appeal  to  the  Association  and 
the  action  of  the  Executive  Committee  shall  not  be  sustained  by  a 


224  Industrial  Combinations  and  Trusts 

majority  vote  of  the  members  of  the  said  Association,  then  the  fine 
imposed  shall  be  remitted,  and  any  sum  that  the  member  may  have 
paid  into  the  Association,  by  reason  of  this  shall  be  returned. 

Ninth:  No  consideration,  in  the  nature  of  brokerage  or  com- 
mission, shall  be  paid  to  any  one  on  sales  of  plates,  on  or  after 
January  ist,  1901. 

All  sales  between  parties  to  this  Agreement  shall  be  at  pool  prices, 
as  provided  in  Agreement  "B,"  and  all  shipments  shall  be  reported 
by  the  manufacturer,  on  which  the  pool  tax  will  be  charged  the 
same  as  to  outside  parties,  the  purchaser  also  to  report  shipments 
of  all  such  materials  so  bought,  for  which  they  shall  claim  and  re- 
ceive credit. 

Tenth:  At  any  meeting  of  the  members  of  this  Association,  called 
by  the  Commissioner,  as  herein  provided,  any  party,  or  parties  may 
give  three  months  notice  of  withdrawal  herefrom  but  no  such  no- 
tice shall  take  effect  prior  to  January  ist,  1902.  Statements  shall 
continue  to  be  rendered  of  all  plates  snipped  up  to  date  of  such  with- 
drawal, the  pool  assessment  to  be  charged  thereon. 

Eleventh:  In  case  other  firms  or  corporations  are  admitted  as 
partners  to  this  Agreement,  the  percentage  of  the  pool  alloted  to 
each  shall  be  deducted  pro  rata  from  the  percentages  of  the  mem- 
bers immediately  prior  to  the  time  of  its  admission ;  and  in  case  any 
of  the  parties  hereto,  or  any  of  the  parties  hereafter  admitted  shall 
withdraw,  the  percentage  of  the  pool  alloted  to  such  withdrawing 
party  or  parties  shall  be  added  pro  rata  to  the  percentages  of  the 
parties  remaining.  In  such  case,  the  Commissioner  shall  compute 
and  report  the  new  postages  to  the  nearest  one  hundredth  of  one 
per  cent.,  which  degree  of  accuracy  shall  be  deemed  sufficient. 

Twelfth:  The  Agreement  herein  made  of  percentages,  the 
amount  of  the  Guarantee  Fund  as  herein  provided,  and  the  Agree- 
ment to  maintain  minimum  fixed  rates  as  covered  in  Agreement 
"B",  shall  not  be  altered,  amended  or  changed  in  any  respect,  ex- 
cept by  the  unanimous  consent  of  all  parties  to  this  agreement. 

Thirteenth:  To  provide  for  the  prompt  payment  of  all  salaries, 
rents  and  other  expenses,  a  general  expense  fund  shall  be  called  in 
as  needed,  by  the  Treasurer,  in  proportion  to  the  percentage  alloted l 
each  member  of  the  Association. 

Fourteenth:  No  matter  of  account,  or  understanding  outside 
of  this  Agreement,  shall  affect  the  settlements  herein  provided  for; 
either  as  an  offset  or  otherwise,  nor  shall  any  written  or  unwritten 
1  Thus  in  original. — Ed. 


Pools  and  Associations  225 

agreement  of  the  parties  hereto,  or  any  of  them  establish  and  main- 
tain uniformity  prices,  or  controversy  arising  out  of  any  such  agree- 
ment or  any  failure  to  carry  out  any  of  its  provisions  or  to  maintain 
prices,  affect  in  any  way  the  rendering  of  the  statements  and  the 
making  of  the  settlements  herein  required. 

Fifteenth:  Whenever  this  Agreement  shall  have  been  termi- 
nated the  balance  of  the  deposit,  with  accumulated  interest,  remain- 
ing in  the  hands  of  the  Treasurer  to  the  credit  of  each  party,  after 
provision  shall  have  been  made  for  the  payment  of  all  expenses,  shall 
be  returned  to  it,  provided  it  shall  have  rendered  all  the  statements 
required  from  it  under  this  Agreement,  and  have  paid  all  its  debtor 
balances.  In  case  any  party  hereto  shall  not  have  fulfilled  its  money 
obligations  under  this  agreement,  the  amount  it  has  on  deposit 
in  the  Guarantee  Fund  shall  be  applied  towards  the  fulfillment  of 
those  obligations,  and  the  excess,  if  any,  returned  to  it.  But  in 
case  any  party  shall  not  have  fulfilled  its  agreement,  the  amount 
it  has  on  deposit  on  x  the  Guarantee  Fund,  or  the  excess  thereof,  as 
above  stated,  shall  be  divided  among  the  parties  who  shall  have 
fulfilled  their  obligations  under  this  agreement  in  the  proportion  of 
their  respective  percentages. 

Sixteenth:  For  all  purpose  1  of  this  contract,  a  ton  shall  be  taken 
and  held  as  Two  Thousand  Pounds,  (2,000). 

In  witness  whereof  the  above  parties  have  signed  this  Agree- 
ment the  day  and  year  first  above  written. 

Exhibit  8 

by-laws  of  the  eastern  states  retail 

lumber  dealers  association  * 

Article  I. 
Name  and  territory. 

The  name  of  this  organization  shall  be  the  Eastern  States  Retail 
Lumber  Dealers'  Association,  and  the  territory  embraced  by  it 
shall  be  that  covered  by  the  association  admitted  to  membership. 

1  Thus  in  original. — Ed. 

2  United  States  of  America  v.  The  Eastern  States  Retail  Lumber  Dealers  As- 
sociation. Original  Petition,  In  the  Circuit  Court  of  the  United  States  for  the 
Southern  District  of  New  York,  Exhibit  A,  pp.  70-73.  This  Association  was 
organized  at  New  Haven,  Conn.,  in  September,  1902. — Ed. 


226  Industrial  Combinations  and  Trusts 

Article  II. 
Objects. 

The  objects  of  this  association  shall  be  to  promote  and  foster  a 
unity  of  action  in  all  matters  pertaining  to  the  legitimate  conduct 
of  the  retail  lumber  trade,  to  encourage  friendly  relations  between 
the  several  associations  whose  members  are  members  of  this  associa- 
tion, to  correct  abuses  and  irregularities  from  which  the  trade  suf- 
fers, to  secure  and  disseminate  any  and  all  proper  information  for  the 
mutual  convenience,  benefit,'  or  protection  of  Us  membership.1 

Article  III. 
Restrictions. 

No  rules,  regulations,  or  by-laws  shall  be  adopted  which  will  in 
any  manner  stifle  competition,  limit  production,  regulate  prices, 
restrain  trade,  or  provide  for  the  pooling  of  profits;  no  coercive 
measures  shall  be  practiced  or  adopted  toward  any  retailer  or  whole- 
saler; nor  shall  any  discriminatory  practices  on  the  part  of  this 
association  be  used  or  allowed  against  any  retailer  or  wholesaler 
for  the  reason  that  he  may  or  may  not  be  a  member  of  any  associa- 
tion, and  no  promises  or  agreements  of  any  kind  shall  be  requisite 
to  membership  in  this  association  other  than  those  contained  in  this 
constitution,  nor  shall  any  penalties  be  imposed  for  any  cause  what- 
soever. 

Article  IV. 

Officers. 

Section  i.  The  officers  of  this  association  shall  consist  of  a  presi- 
dent, vice  president,  secretary,  who  shall  also  act  as  treasurer,  who 
shall  be  elected  by  ballot  at  each  annual  meeting,  and  with  two 
other  members,  who  shall  also  be  elected  at  each  annual  meeting, 
shall  constitute  the  board  of  directors,  and  a  majority  of  the  votes 
cast  shall  be  necessary  to  a  choice.  All  officers  shall  hold  office 
until  their  successors  are  duly  elected  and  qualified.  No  officer 
shall  have  power  to  make  or  enter  into  any  contract,  obligation,  or 
agreement  on  behalf  of  the  association  until  such  contract,  obliga- 
tion, or  agreement  shall  have  been  submitted  to,  and  received  the 
indorsement,  approval,  or  sanction  of  a  majority  of  the  member- 
1  Italics  are  the  editor's. 


Pools  and  Associations  227 

ship.  No  officer  shall  obligate  the  association  for  any  expenditure 
of  money  above  the  sum  of  $25  without  the  approval  of  a  majority 
vote. 

Sec.  2.  Until  the  first  annual  meeting  the  vice  president,  secre- 
tary, and  treasurer  need  not  be  members  of  the  board  of  directors. 

Article  V. 
Duties  of  officers. 

Each  officer  of  the  association  shall  perform  the  duties  usually 
devolving  upon  the  occupant  of  such  office.  It  shall  be  the  duty  of 
the  secretary  to  perform  such  labors  on  behalf  of  the  association  as 
he  may  be  called  upon  in  the  interim  between  meetings  and  to  carry 
out  all  matters  upon  which  action  has  been  taken  in  meeting,  un- 
less otherwise  ordered. 

Article  VI. 

Meetings. 

The  association  shall  hold  two  regular  meetings  each  twelve 
months,  the  annual  meeting  on  the  first  Wednesday  in  October,  in 
the  city  of  New  York,  and  the  second  meeting  at  such  time  and 
place  as  may  be  determined  upon.  Special  meetings  may  be  called 
by  the  president  when  considered  necessary,  or  whenever  the  repre- 
sentatives of  the  three  associations  shall  unite  in  asking  that  such 
a  meeting  be  called.  Notices  of  all  meetings  shall  be  given  to  the 
members  of  this  association  at  least  five  days  before  the  date  set  for 
such  meeting. 

Article  VII. 

Membership. 

Section  i.  The  members  of  this  association  shall  be  composed  of 
three  members,  one  of  whom  shall  be  the  secretary  of  each  of  the 
following  associations:  The  New  York  Lumber  Trade  Association, 
the  New  Jersey  Lumbermen's  Protective  Association,  the  Lumber 
Dealers'  Association  of  Connecticut,  the  Lumber  Dealers'  Associa- 
tion of  Rhode  Island,  the  Massachusetts  Retail  Lumber  Dealers' 
Association,  the  Retail  Lumbermen's  Association  of  Philadelphia, 
and  of  three  members,  one  of  whom  shall  be  secretary  of  such  other 
regularly  organized  bodies  representing  the  retail  lumber  dealers' 
interests  as  shall  be  elected  by  a  majority  vote  at  any  regular  meet- 
ing of  this  association. 


228  Industrial  Combinations  and  Trusts 

Sec.  2.  All  members  shall  enjoy  equal  privileges  except  that  upon 
the  final  vote  on  all  questions  and  at  elections,  and  on  amendments, 
shall  be  decided  under  the  unit  rule,  the  three  members  of  each 
association  being  entitled  to  only  one  vote  for  such  three  members. 

Article  VIII. 
Committees  and  delegates. 

Whenever  action  may  require  the  appointment  of  committees  to 
perform  special  work,  or  necessity  calls  for  the  appointment  of  a 
delegate,  or  delegates,  the  president  shall  be  authorized  to  notify 
the  members  of  this  association,  stating  in  writing  the  object  for 
such  appointment,  and  upon  receiving  a  majority  vote  favorable 
thereto  he  shall  have  power  to  act  in  the  making  of  such  appoint- 
ment as  he  may  deem  proper. 

Article  IX. 
Settlements  of  disputes. 

Any  and  all  claims  referred  to  this  association  for  settlement 
shall  be  submitted  in  writing  unless  otherwise  decided,  with  such 
accompanying  documentary  evidences  as  the  parties  thereto  may 
consider  necessary,  and  all  parties  interested  must  agree  to  accept 
the  decision  of  this  association  as  final. 

Article  X. 

Expenses. 

To  meet  the  expenses  incurred  by  this  association,  an  annual 
fee  of  $10  shall  be  paid  by  the  members  of  each  association  jointly 
at  the  annual  meeting,  and  all  other  expenses  shall  be  pro  rata, 
based  on  the  amount  received  from  annual  dues  for  the  previous 
year  by  the  association  of  which  they  are  members. 

Article  XI. 

Amendments. 

Amendments  to  these  articles  may  be  made  at  any  meeting  by  a 
two-thirds  vote  of  the  members  present,  provided  notice  of  such 
amendment  shall  have  been  included  in  the  call  for  the  meeting. 


Pools  and  Associations  229 

Article  XII. 
Quorum. 

A  quorum  of  this  organization  for  the  transaction  of  business 
shall  consist  of  not  less  than  one  of  the  members  of  three  of  said 
associations. 

Exhibit  9 

naval  stores  agreement  ! 

Memorandum  of  agreement  made  and  executed  on  this 

day  of  March,  A.  D.  1905,  between  the  Patterson-Downing 
Company,  a  corporation  of  West  Virginia,  of  the  first  part,  herein- 
after called  "Patterson";  the  S.  P.  Shotter  Company,  also  a  corpo- 
ration of  West  Virginia,  of  the  second  part,  hereinafter  called 
"Shotter";  the  Societe  Anonyme  des  Produits  Resineux,  a 
corporation  of  the  Kingdom  of  Belgium,  of  the  third  part,  herein- 
after called  "Anonyme";  Nickoll  &  Knight,  a  mercantile  firm 
composed  of  Alexander  Knight,  of  the  city  of  London,  England,  of 
the  fourth  part,  hereinafter  called  "Nickolls";  and  the  Globe  Na- 
val Stores  Company,  also  a  corporation  of  West  Virginia,  of  the 
fifth  part,  hereinafter  called  "GLOBE." 

Whereas  Globe  is  chartered  and  organized  for  the  purpose  of  buy- 
ing and  selling  and  generally  dealing  in  spirits  of  turpentine,  includ- 
ing turpentine  chemically  extracted  by  artificial  process  from  pine 
wood,  and  which  is  commonly  called  wood  turpentine;  and 

Whereas,  Patterson,  Shotter,  Anonyme,  and  Nickolls  as  a  part  of 
their  respective  business  severally  deal  in  such  turpentine  product; 
and 

Whereas,  further  the  said  Patterson,  Shotter,  Anonyme,  and 
Nickolls  have  each  severally  subscribed  to  the  capital  stock  of  said 
Globe  in  the  following  proportions,  viz: 

Patterson  to  34%  thereof,  or  340  shares; 
Shotter  to  21-^%  thereof,  or  215  shares; 
Anonyme  to  26-^%  thereof,  or  265  shares; 
Nickolls  to  18%  thereof,  or  180  shares; 

1  The  United  States  of  America  v.  American  Naval  Stores  Company  et  al.  Pe- 
tition in  Equity,  In  the  District  Court  of  the  United  States  for  the  Eastern  Divi- 
sion of  the  Southern  District  of  Georgia,  Exhibit  A,  pp.  25-36.  In  this  case  the 
Globe  Naval  Stores  Company  appears  from  the  agreement,  and  so  the  Government 
alleges,  to  be  merely  a  clearing  house  for  the  pooling  of  profits  and  losses. — Ed. 


230  Industrial  Combinations  and  Trusts 

all  of  said  shares  being  of  the  par  value  of  fifty  dollars  ($50)  per 
share;  and 

Whereas,  Globe  desires  to  acquire  from  the  first,  second,  third, 
and  fourth  parties,  respectively,  their  several  turpentine  businesses, 
and  said  first,  second,  third,  and  fourth  parties  are  willing  to  dispose 
of  the  same  on  the  terms  and  conditions  hereinafter  set  forth;  and 

Whereas,  the  said  Patterson  and  Shotter  are  extensive  dealers  in 
American  rosin,  and  one  of  the  considerations  moving  them  to  enter 
into  this  contract  is  the  regulation  of  the  rosin  business  as  between 
themselves  and  the  said  Anonyme  and  Nickolls: 

Now,  then,  this  agreement  witnesseth,  That  in  consideration  of 
the  premises  and  of  one  dollar  by  each  of  said  parties  to  each  of  the 
other  in  hand  paid,  the  receipt  whereof  is  hereby  acknowledged,  the 
parties  hereto  mutually  covenant  and  agree  each  with  the  others 
as  follows: 

1.  The  said  Patterson,  Shotter,  Anonyme,  and  Nickolls  severally 
sell,  assign,  and  set  over  to  Globe  their  respective  turpentine  busi- 
nesses upon  the  terms  and  subject  to  the  limitations  hereinafter 
mentioned. 

2.  The  said  Globe,  in  consideration  of  such  sales  and  assign- 
ments, agrees  to  pay  to  Patterson,  Shotter,  Anonyme,  and  Nickolls, 
respectively,  seventeen  thousand  dollars  ($17,000),  ten  thousand 
seven  hundred  and  fifty  dollars  ($10,750),  thirteen  thousand  two 
hundred  and  fifty  dollars  ($13,250),  and  nine  thousand  dollars 
($9,000),  in  full-paid  stock  at  par  of  the  Globe  Company. 

3.  It  is  understood  and  agreed  that  said  Patterson,  Shotter, 
Anonyme,  and  Nickolls  shall  severally  act  as  the  agents  and  repre- 
sentatives of  said  Globe  in  the  buying  and  selling  of  turpentine 
products,  their  several  turpentine  businesses,  however,  being  con- 
ducted as  heretofore  in  their  own  names,  but  for  account  of  Globe. 

4.  It  is  understood  and  agreed  that  James  Farie,  jr.,  of  Savannah, 
Georgia,  is  under  contract  to  Nickolls  whereby  his  entire  naval 
stores  business  shall  be  carried  on  as  heretofore,  that  is  to  say,  the 
turpentine  business  of  the  said  Farie  shall  be  conducted  by  him  for 
account  of  Globe,  and  the  rosin  business  for  the  joint  account  of 
Patterson  and  Shotter,  it  being  expressly  understood  that  the  said 
James  Farie,  jr.,  and  Andrew  Farie,  also  of  Savannah,  Georgia, 
shall  have  no  interest  of  any  kind,  either  directly  or  indirectly,  and 
shall  not  in  any  manner  or  form,  deal  or  operate  in  spirits  of  turpen- 
tine or  rosin  or  other  products  of  pine  trees,  except  as  provided  in 
said  contract,  a  copy  of  which  is  attached  hereto,  and  in  considera- 


Pools  and  Associations  231 

tion  of  the  premises  Nickolls  hereby  assigns  all  their  rights  in  and 
under  said  contract  to  Globe,  and  on  the  other  hand,  Globe  hereby 
takes  the  place  of  Nickolls  in  said  contract  and  assumes  all  the 
burdens  and  obligations  thereunder  and  shall  be  entitled  to  all 
benefits  thereof,  provided,  however,  that  Globe  shall  not  be  re- 
quired by  reason  of  said  contract  to  pay  to  the  said  James  Farie, 
jr.,  a  sum  greater  than  twenty-one  thousand  five  hundred  dollars 
($21,500)  per  annum,  it  being  further  understood  that  said  Nickolls 
shall  contribute  the  sum  of  seven  thousand  five  hundred  dollars 
($7,500)  for  the  office  expenses  of  said  James  Farie,  jr.,  in  Savannah, 
Georgia. 

5.  It  is  understood  and  agreed  that  said  Patterson,  Shotter,  Anon- 
yme,  and  Nickolls,  in  conducting  their  several  businesses  as  the 
agents  and  for  account  of  Globe  as  aforesaid,  shall  confine  their 
operations  to  regular  business  transactions,  so  as  to  assure  as  far  as 
possible  reasonable  and  legitimate  profits,  it  being  expressly  under- 
stood that  neither  of  said  parties  shall  be  at  liberty  to  do  a  specu- 
lative business  without  the  consent  of  Globe. 

6.  It  is  understood  and  agreed  that  neither  Patterson,  Shotter, 
Anonyme,  or  Nickolls  shall  hold  any  interest  or  directly  or  indirectly 
deal  in  American  turpentine,  except  as  the  agents  and  for  account 
and  benefit  of  Globe,  it  being  understood  that  by  American  turpen- 
tine is  meant  the  spirits  of  turpentine  and  wood  turpentine  which 
is  concentrated  at  all  and  every  of  the  Atlantic  seaports  of  the 
United  States  of  America,  and  which  either  of  said  first  four  par- 
ties may  handle  and  sell  as  being  from  said  Atlantic  seaports. 

7.  It  is  understood  and  agreed  that  this  agreement  comprehends 
and  includes  as  part  of  the  turpentine  business  herein  purchased 
the  sale  of  French  and  Spanish  turpentine  exported  from  France 
and  Spain,  but  it  does  not  include  any  French  turpentine  handled 
or  sold  in  France  itself. 

8.  It  is  understood  and  agreed  that  this  contract  does  not  cover 
any  turpentine  business  which  Patterson  and  Shotter  may  control 
in  the  Gulf  ports  of  the  United  States,  it  being  expected  that  the 
domestic  consumption  will  absorb  all  the  receipts  coming  to  said 
Gulf  ports.  In  the  event,  however,  the  domestic  consumption  does 
not  absorb  all  of  such  Gulf  port  receipts,  then  Patterson  and  Shot- 
ter, respectively,  agree  to  turn  over  to  Globe  the  surplus  receipts, 
provided,  however,  that  the  quantity  of  such  surplus  must  be 
specified  and  declared  on  the  fifteenth  (15th)  and  last  days  of  each 
month  and  must  be  charged  to  said  Globe  at  the  average  Savannah 


232  Industrial  Combinations  and  Trusts 

quotations  of  the  previous  fifteen  days,  with  the  exception,  however, 
of  a  surplus  at  New  Orleans,  not  exceeding  twenty  thousand 
(20,000)  barrels  per  annum,  for  which  Globe  hereby  agrees  to  pay 
one  and  a  half  (i-j/Q  cents  per  gallon  above  the  average  quotations. 
Should  the  Savannah  quotations  during  the  periods  affected  be 
fictitious,  the  average  price  to  be  paid  must  be  on  the  same  basis 
that  has  been  applied  to  the  receipts  at  the  Atlantic  closed  ports. 
Patterson  and  Shotter  severally  agree  that  they  will  make  no  charge 
for  interest,  storage,  and  fire  insurance  on  such  surplus  receipts  of 
the  Gulf  ports  up  to  the  day  on  which  they  declare  the  same.  After 
said  date  the  charges  will  be  assumed  and  borne  by  said  Globe, 
provided  that  the  same  shall  not  exceed  the  charges  now  in  force  in 
Savannah,  Georgia. 

9.  It  is  understood  and  agreed  that  Patterson  and  Shotter  and 
Nickolls  (the  latter  operating  through  James  Farie,  jr.,  at  Savannah, 
Georgia)  shall  continue  to  conduct  their  respective  business  l  in 
turpentine  as  hereinbefore  defined,  but  for  the  account  and  benefit 
of  Globe.  As  compensation  for  their  services  in  the  premises  said 
Patterson  and  Shotter  shall  be  allowed  a  commission  of  one  per 
cent  (1%)  on  all  sales  made  by  them,  respectively,  provided, 
however,  that  said  Patterson  and  Shotter  shall  only  receive  one- 
half  GH9  of  one  per  cent  (1%)  on  sales  made  to  the  Pratt  works  in 
New  York,  Prince  in  Boston,  and  on  all  sales  to  Philadelphia.  It 
is  further  understood  that  on  sales,  transfers,  and  divisions  of  re- 
ceipts to  and  with  the  Standard  Oil  Company  no  commission  will 
be  charged  except  upon  such  quantities  as  will  reduce  the  commit- 
ments of  Patterson  and  Shotter  under  their  contracts  with  the 
Standard  Oil  Company  in  the  Gulf  States,  upon  which  quantities 
they  will  be  allowed  a  commission  of  one  per  cent  (1%). 

10.  It  is  understood  that  Nickolls  shall  not  sell  more  than  fif- 
teen thousand  (15,000)  barrels  per  annum. 

11.  It  is  understood  and  agreed  that  Anonyme  will  conduct  for 
the  company  and  for  its  benefit  any  business  offered  for  export  in 
Spanish  and  French  turpentine,  and  that  said  Anonyme  shall  be 
allowed  a  commission  of  one  per  cent  (1%)  on  all  Spanish  turpen- 
tine, and  a  commission  of  one-half  Q/Q  of  one  per  cent  (1%)  on 
maximum  fifteen  thousand  (15,000)  barrels  of  French  turpentine. 

12.  It  is  understood  and  agreed  that  the  operations  of  Patterson, 
Shotter,  Anonyme,  and  Nickolls  for  account  of  Globe  shall  be 
conducted  and  entered  under  a  turpentine  account,  and  shall  in- 

1  Thus  in  original. — Ed. 


Pools  and  Associations  233 

elude  all  transactions,  whether  actual  deliveries  or  contracts,  where 
settlement  is  made  in  lieu  of  actual  delivery.  It  is  understood 
that  Patterson,  Shotter,  Anonyme,  and  Nickolls,  respectively, 
shall  each  operate  in  their  own  names,  and  with  their  own  organiza- 
tions, the  said  Globe  being  responsible  for  any  losses  that  may  be 
sustained  through  the  nonfulfillment  of  contracts  or  bad  debts. 

The  turpentine  account  shall  be  charged  at  cost  with  all  of  the 
turpentine  bought  for  account  of  Globe,  and  such  account  shall  be 
credited  with  the  result  of  all  sales  made  for  Globe.  The  said 
account  shall  not  be  charged  with  any  of  the  ordinary  expenses  of 
maintenance  of  the  respective  business  1  of  said  Patterson,  Shotter, 
Anonyme,  and  Nickolls,  but  only  with  the  actual  expenses  of 
storage,  handling,  marine  and  fire  insurance,  cabling  and  telegraph- 
ing, legitimate  commissions  to  agents  and  brokers  for  effecting 
sales,  and  interest  on  advances;  or,  in  other  words,  only  actual  out- 
lays of  money  other  than  office  expenses  shall  be  charged  to  turpen- 
tine account. 

It  is  understood  that  the  first  four  parties,  respectively,  shall 
insure  and  keep  insured  against  fire  and  marine  risk  all  turpentine 
purchased  and  held  by  them,  respectively,  for  account  of  Globe, 
and  in  the  event  of  any  loss  being  incurred  by  reason  of  either  of 
said  first  four  parties  failing  to  insure  and  keep  insured  any  turpen- 
tine so  purchased  or  held  for  account  of  Globe,  such  loss  shall  be 
borne  by  the  party  so  in  default;  provided,  however,  that  said  first 
four  parties  shall  not  be  held  responsible  for  the  solvency  of  the 
company  in  which  the  insurance  may  be  effected,  and  it  is  further 
understood  and  agreed  that  inasmuch  as  said  Patterson  and  Shot- 
ter own  and  to  a  more  or  less  extent  operate  in  the  name  of  the 
Standard  Naval  Stores  Company  as  purchasing  and  forwarding 
agent  of  turpentine  purchased  for  account  of  Globe,  the  terms  and 
provisions  of  this  agreement  as  to  insurance  shall  be  applicable  to 
said  Standard  Naval  Stores  Company,  and  the  said  Patterson  and 
Shotter  hereby  make  themselves  responsible  to  Globe  for  any  loss 
which  it  may  sustain  by  the  failure  of  the  said  Standard  Naval 
Stores  Company  to  insure  and  keep  insured  all  turpentine  held  by 
it,  either  directly  or  indirectly,  for  account  of  said  Globe.  It  is 
understood  that  interest  on  moneys  which  may  be  advanced  by 
either  of  the  first  four  parties  is  to  be  charged  at  the  rate  of  six  per 
cent  (6%)  per  annum,  and  in  the  event  differences  occur  in  regard 
to  interest  by  reason  of  the  different  modes  of  bookkeeping  of  the 
1  Thus  in  original. — Ed. 


234  Industrial  Combinations  and  Trusts 

said  first  four  parties,  it  is  understood  that  the  same  shall  be  ad- 
justed by  the  auditor  of  Globe  at  the  half-yearly  settlement. 

It  is  understood  that  Patterson,  Shotter,  Anonyme,  and  Nickolls, 
respectively,  shall  keep  special  books  for  turpentine,  which  books 
shall  at  all  times  be  open  to  inspection  of  the  auditor  of 
Globe. 

It  is  understood  that  all  transactions  made  by  either  the  said 
Patterson,  Shotter,  Anonyme,  or  Nickolls  for  account  of  the  com- 
pany shall  be  reported  daily  to  the  principal  office  of  the  com- 
pany. 

It  is  further  understood  and  agreed  that  settlements  of  profit 
and  loss  account  between  Globe  and  each  of  said  first  four  parties 
shall  take  place  every  six  months,  in  January  and  July,  in  each 
year,  as  soon  as  the  accounts  for  the  preceding  six  months  can  be 
audited. 

13.  As  part  of  the  consideration  of  this  contract  Anonyme  hereby 
agrees  that  it  will  transport  by  its  steamers  Iris  and  Clematis  for 
account  of  Globe  a  minimum  of  one  hundred  thousand  (100,000) 
barrels  of  turpentine  and  a  maximum  of  one  hundred  and  fifty  thou- 
sand (150,000)  barrels  of  turpentine  per  annum  (quantity  within 
said  limits  to  be  at  the  option  of  Globe)  to  Antwerp,  Rotterdam, 
London,  Liverpool,  Hull,  Avonmouth,  and  Hamburg.  The  steam- 
ers are  to  be  loaded  at  the  discretion  of  Globe  either  at  Savannah, 
Brunswick,  Fernandina,  or  Jacksonville  (always  providing  there 
is  sufficient  water  at  these  ports),  but  are  to  load  at  one  port  only. 
It  is  agreed  that  the  rate  of  freight  shall  be  three  shillings  nine 
pence  (3/9)  direct  for  forty  (40)  gallons  gross  gauge  in  barrels,  and 
if  shipped  in  bulk  the  rate  shall  be  the  same,  but  forty  (40)  gallons 
net.  This  rate  is  without  primage.  If  said  steamers  shall  be  called 
upon  to  load  or  discharge  in  any  two  of  the  above  named  ports, 
Globe  agrees  to  pay  six  hundred  dollars  ($600)  additional  for  such 
loading,  and  six  hundred  dollars  ($600)  additional  for  such  dis- 
charging. It  is  understood  that  Anonyme  will  complete  the  car- 
goes of  said  steamers  with  rosin  or  other  goods  at  their  convenience 
and  for  their  own  account  and  at  their  risk. 

It  is  understood  that  Anonyme  shall  not  transport  to  Europe 
more  than  one  hundred  thousand  (100,000)  barrels  of  rosin  per 
annum  on  the  Iris  or  Clematis.  In  the  event  the  said  Iris  or  the 
said  Clematis  do  not  carry  this  stipulated  amount  it  is  understood 
that  the  said  Anonyme  may  use  outside  steamers  or  sailing  vessels, 
but  it  is  distinctlv  understood  that  in  such  event  the  quantity  of 


Pools  and  Associations  235 

rosin  to  be  shipped  for  account  of  said  Anonyme  shall  not  exceed 
seventy  thousand  (70,000)  barrels,  and  said  Anonyme  further 
agrees  that  all  rosin  shipped  by  them  for  their  own  account  shall  be 
for  the  port  of  Antwerp  exclusively. 

It  is  further  understood  and  agreed  that  all  rosin  which  Anonyme 
may  sell  in  London  or  Hamburg  shall  be  for  the  joint  account  of 
Patterson  and  Shotter,  and  in  consideration  thereof  said  Patterson 
and  Shotter  hereby  agree  to  pay  said  Anonyme  a  net  commission 
of  five  cents  (5c.)  per  barrel  of  two  hundred  and  eighty  (280)  pounds 
and  freight  at  the  rate  of  two  shillings  and  three  pence  (2/3)  f°r 
three  hundred  and  ten  (310)  pounds  direct  Hamburg  or  London 
with  no  primage.  It  is  understood  that  the  quantity  which  may  be 
sold  by  said  Anonyme  in  London  and  Hamburg  for  account  of  said 
Patterson  and  Shotter  shall  not  be  less  than  fifteen  thousand 
(15,000)  nor  more  than  twenty  thousand  (20,000)  barrels,  the  quan- 
tity within  said  limits  to  be  at  the  option  of  said  Patterson  and 
Shotter;  and  the  said  Patterson  and  Shotter  reserve  the  right  to 
designate  either  Hamburg  or  London.  And  it  is  further  under- 
stood that  said  Anonyme  shall  not  be  entitled  to  any  commission  on 
any  rosin  which  has  been  furnished  by  said  Patterson  and  Shotter 
to  complete  cargoes  for  London,  Hamburg,  or  any  other  port 
which  may  be  agreed  upon. 

Said  Patterson  and  Shotter  hereby  severally  agree  that  they  will 
not  sell  any  rosin  for  shipment  to  a  Belgian  port,  and  they  further 
agree  that  at  the  request  of  said  Anonyme,  and  as  required  by  them, 
they  will  furnish  and  provide  rosin  for  the  purposes  and  within  the 
limitations  therein  specified  in  fair  proportions  from  B  to  K,  inclu- 
sive, free  of  charge  for  storage  and  fire  insurance,  and  as  compensa- 
tion to  the  said  Patterson  and  Shotter  for  providing  such  rosin 
said  Anonyme  agrees  to  pay  said  Patterson  and  Shotter  a  commis- 
sion of  seven  and  one  half  (7-^)  cents  for  every  barrel  of  two  hun- 
dred and  eighty  (280)  pounds  so  provided  by  them. 

And  said  Anonyme  further  agrees  to  give  to  said  Patterson  and 
Shotter  thirty  (30)  days'  notice  in  writing  (notice  to  either  being 
considered  as  notice  to  both)  of  their  requirements  of  rosin  under 
the  provisions  hereinbefore  set  forth,  and  it  is  further  understood 
and  agreed  that  the  price  of  rosin  so  to  be  ordered  and  furnished 
shall  be  based  upon  the  average  price  of  the  respective  grades  dur- 
ing the  thirty  (30)  days  after  the  orders  for  the  same  have  been 
received;  provided,  however,  that  if  circumstances  arise  of  such 
character  which  will  prevent  said  Anonyme  (acting  with  reasona- 


236  Industrial  Combinations  and  Trusts 

ble  discretion)  from  giving  the  notice  hereinbefore  mentioned, 
then,  and  in  such  case,  the  price  of  the  rosin  so  ordered,  and 
furnished  shall  be  based  upon  the  average  price  of  the  respective 
grade  l  at  Savannah  during  the  thirty  (30)  days  immediately  follow- 
ing the  date  of  the  receipt  of  the  notice. 

It  is  further  understood  and  agreed  that  for  the  purpose  of  com- 
pleting the  cargoes  of  vessels  carrying  turpentine  in  the  manner 
hereinbefore  referred  to,  said  Patterson  and  Shotter  shall,  when 
and  as  required  by  said  Anonyme  and  Nickolls,  respectively,  fur- 
nish for  said  vessels  part  cargoes  of  rosin  for  their  own  account  at 
current  market  freight  rates,  provided  that  said  Patterson  and 
Shotter  shall  in  no  case  be  required  to  furnish  more  than  thirty  per 
cent  (30%)  of  the  carrying  capacity  of  said  vessels.  As  the  princi- 
pal consideration  moving  said  Patterson  and  Shotter  for  making 
the  freight  arrangements  herein  set  forth,  said  Anonyme  and  Nick- 
olls hereby  severally  agree  that  they  will  not  buy  or  sell,  either 
directly  or  indirectly,  American  rosin,  except  in  the  manner  and 
under  the  limitations  in  this  agreement  set  forth. 

14.  It  is  further  understood  and  agreed  that  if  for  any  cause  any 
or  all  of  the  first  four  parties  shall  discontinue  business  during  the 
term  of  this  agreement,  then  and  in  such  event  Globe  shall  have  the 
right  to  purchase  the  shares  of  stock  of  the  party  or  parties  so  dis- 
continuing business  at  par. 

15.  It  is  understood  and  agreed  that  this  agreement  shall  begin 
on  the  first  day  of  April,  1905,  and  shall  continue  for  the  full  term 
of  five  (5)  years. 

16.  It  is  further  agreed  that  in  the  event  any  difference  of  opinion 
shall  arise  between  two  or  more  of  said  parties  as  regards  the  mean- 
ing of  any  part  of  this  agreement,  all  such  differences  shall  be 
settled  by  arbitration  in  New  York,  each  side  selecting  an  arbitra- 
tor, and  the  arbitrators  so  selected,  before  taking  knowledge  of  the 
dispute,  shall  select  an  umpire,  and  the  award  of  the  arbitrators 
shall  be  final. 

In  witness  whereof  the  corporations  above  named  by  their  proper 
officers,  and  the  said  Nickoll  &  Knight  in  proper  person,  have  here- 
unto set  their  hands  and  affixed  their  seals,  the  seals  of  said  cor- 
porations being  duly  attested  by  their  respective  secretaries,  the 
day  and  year  first  above  written. 

(Signatures) 

1  Thus  in  original. — Ed. 


Pools  and  Associations  237 

Exhibit  10 

bath  tub  combination1 

Memorandum  of  Agreement 

EDWIN  L.  WAYMAN 

1509  Arrott  Bldg. 
Pittsburgh 

We  hereby  agree  to  execute  with  E.  L.  Wayman  of  the  City  of 
Pittsburg,  as  Licensor,  on  or  before  April  15th,  1910,  a  License 
Agreement  for  the  Manufacture  of  Sanitary  Enameled  Ware  under 
the  following  United  States  Letters  Patent. 

"Various  Patents  covering  Pneumatic  Dredgers." 
(to  be  enumerated  in  detail). 

and  such  additional  Patents  as  may  come  into  his  possession,  upon 
the  Terms,  Conditions,  etc.,  as  hereinafter  stated  or  provided  for: — 

1.    The  License  Agreement  to  cover  the  following 
Schedules  of  Enameled  Ware 
Schedule  1.     5  year  Guaranteed  Baths. 

a  tc  a  tc 

2  2 

3  All  other  Grades  of  Baths. 

4  Small  Ware,  Lavatories,  etc.  and 

R.  R.  sinks. 

5  Flat  Rim  Sinks 

6  Competitive  Lavatories  552  to  562 

Inclusive  565  and  535. 

1  United  Stales  of  America  v.  The  Standard  Sanitary  Manufacturing  Com- 
pany and  others.  In  the  Circuit  Court  of  the  United  States  for  the  District  of 
Maryland,  Gov't  Exhibit  No.  3,  Record,  Vol.  II,  pp.  4-6.  It  is  necessary  that 
some  explanation  should  be  given  in  regard  to  the  bath  tub  combination.  Both 
of  the  exhibits  should  first  be  read  to  make  the  situation  clear  as  also  the  ex- 
cerpts from  the  opinion  of  Judge  Rose  against  the  combination  (cf.  Chap.  XIII). 
On  the  face  of  the  matter  the  combination  appears  to  be  a  patent  monopoly. 
The  contention  of  the  Government  however  was  that  the  licensing  scheme  was 
purely  a  subterfuge,  a  device  used  for  the  purpose  of  creating  the  combination. 
This  view  is  of  course  supported  by  the  fact  that  none  of  the  patents  which  were 
assigned  to  Wayman  by  three  members  of  the  subsequent  combination  were  or 
are  absolutely  necessary  in  the  manufacture  of  sanitary  enameled  iron  ware. 
For  this  reason  the  combination  has  been  assigned  a  place  among  the  pools 
rather  than  among  the  patent  monopolies. — Ed. 


238  Industrial  Combinations  and  Trusts 

2.  The  amount  of  Royalty  to  be  as  follows: 

$5.00  per  day  per  furnace  in  operation  with  a  rebate 
of  90  per  cent,  beginning  with  the  1st  month  of 
the  2nd  Period  and  monthly  thereafter,  if  the 
terms  of  the  License  have  been  complied  with. 

3.  For  each  violation  of  the  Price  Regulations  of  the 

License  Agreement  we  agree  to  forfeit  a  sum 
equal  to  the  amount  of  the  shipment  in  question, 
and  such  other  penalties  as  may  be  agreed 
on. 

4.  The  Selling  Prices  to  the  Jobbers  to  be  established 

through  the  Licensor  by  a  Price  Committee  ap- 
pointed by  the  various  manufacturers. 

5.  The  Resale  Prices  to  the  Jobber,  taking  into  con- 

sideration the  rebate  for  observance  of  Buying 
and  Selling  Regulations,  shall  be  figured  as  fol- 
lows: 

High  Grade  Goods      25%  above  Jobbers  cost. 
Competition  Goods  16/^%  above  Jobbers  cost. 

6.  The  Rebates  to  Jobbers  shall  be  as  follows: 

10%,  payable  at  end  of  Period  for  strict  observance 
of  agreements,  the  details  of  the  manner  in  which 
the  rebate  shall  be  made,  to  be  determined. 

7.  The  length  of  the  Rebate  Periods  shall  be  3  months 

beginning  April  15th,  1910,  with  the  exception 
of  the  first  period,  which  shall  end  July  1st. 

8.  The  License  Agreement  and  Resale  Prices  shall  be- 

come effective  April  15b,1  and  the  agreement  to 
be  executed  between  the  Manufacturers  and 
Jobbers  shall  contain  a  clause  to  the  effect  that 
all  material  purchased  or  on  hand  previous  to  the 
above  date  shall  be  sold  at  the  Resale  Prices  that 
may  be  established. 

9.  The  details  of  Contract  Forms  between  the  Manu- 

facturers and  the  Licensor  shall  be  drawn  up  by 
the  Licensor  and  submitted  for  approval  at  the 
next  Special  Meeting  to  be  held  in  New  York 
City. 
10.  The  Licensor  will  also  submit  the  same  covering 
Agreement  between  Manufacturers  and  Jobbers. 

1  Thus  in  original. — Ed. 


Pools  and  Associations 


239 


II.  The  following  "Preferential  Discounts"  from  the 
selling  Prices  established  by  the  Licensor  will  be 
allowed  the  various  Manufacturers  on  Sales  to 
Jobbers  only. 

Schedule  i — 5  year  Guaranteed  Baths 
2—2     "  "  " 

"        3— All  other  Grades  of  Baths 

4 — Small     Ware — Lavatories,    etc.    & 

R.  R.  Sinks. 
5 — Sinks,  flat  rim. 

6 — Competitive  lavatories  552-562  In- 
clusive 565  and  535 


SCHEDULES. 

Manufacturers 

1 

2 

3 

4 

S          6 

Standard 

None 

None 

None 

None      None    None 

Wolff 

<< 

M 

<           a 

U.S. 

n 

it 

t                a 

Kohler 

tt 

a 

t                tt 

Barnes 

tt 

a 

t                a 

Cahill 

tt 

a 

t                tt 

Mott 

tt 

it 

t                a 

Union 

s% 

2h% 

it 

2\% 

t                a 

Colwell 

5% 

aj% 

a 

2\% 

t                a 

Clymer 

5% 

22% 

n 

2h% 

l                a 

Blairsville 

5% 

2\% 

tt 

2\% 

t                a 

McVay  &  Walker 

5% 

2\% 

tt 

2\% 

t                tt 

Weiskittel 

5% 

2~2VC 

ic 

2\% 

t                a 

National 

5% 

2h% 

a 

22"% 

e               it 

Iron  City 

5% 

2\% 

tt 

2\% 

1               a 

Humphry  es 

5% 

22% 

tt 

2\%      ; 

1               a 

Day- Ward 

2\% 

22% 

tt 

22% 

t               it 

McCrum-Howell 

5% 

22% 

a 

2\% 

t                a 

Wheeling 

5% 

2\% 

a 

2\% 

1                a 

12.  The  length  of  time  for  which  the  License  Agreement 
will  be  entered  into  and  such  other  details  as 
may  be  necessary  for  the  perfection  of  the  ar- 
rangement to  be  determined  at  the  next  meeting 
of  the  various  Manufacturers. 

Signed 
(Here  follow  eleven  signatures.) 


240  Industrial  Combinations  and  Trusts 


Ehxibit  II 
bath  tub  combination 


license  agreement 


This  Agreement,  Made  in  duplicate  this day  of 

191 . . . ,  between  Edwin  L.  Wayman,  a  resident  of  the  City  of  Pitts- 
burgh, State  of  Pennsylvania  (hereinafter  called  the  "Licensor"), 
party  of  the  first  part,  and 

a  corporation  duly  organized  and  existing  under  and  by  virtue  of 

the  laws  of  the  State  of (hereinafter  called 

the  "Licensee"),  party  of  the  second  part. 

WITNESSETH : 

That  Whereas,  the  said  Wayman  owns  or  controls  or  has  the 
right  to  grant  licenses  under  certain  Letters  Patent  pertaining  to 
the  manufacture  of  Sanitary  Enameled  Iron  Ware,  enumerated 
in  "Schedule  of  Patents,"  hereto  annexed,  and 

Whereas,  The  Licensee  is  desirous  of  acquiring  a  License  under 
said  Letters  Patent  of  the  character  and  upon  the  terms  and  condi- 
tions herein  set  forth; 

Now,  Therefore,  for  and  in  consideration  of  the  covenants 
of  this  agreement,  the  parties  hereto  agree  as  follows: — 

1.  The  Licensor  hereby  grants  to  the  Licensee,  subject  to  the  pro- 
visions hereinafter  contained,  a  non-exclusive  License  to  practice 
in  the  manufacture  of  Sanitary  Enameled  Iron  Ware,  the  processes 
patented  in  said  several  Patents,  to  make  and  use  in  such  manufac- 
ture the  machines  and  devices  patented  in  said  Patents  and  to  use 
and  sell  goods  so  made;  the  said  License  being  non-assignable  and 
non-transferable  except  to  successors  to  substantially  the  entire 
good-will  and  business  of  the  Licensee,  and  this  License  shall  be 
available  for  the  Licensee  and  its  successors  only  so  long  as  it  or 
they  have  not,  prior  to  the  date  hereof,  been  engaged  in  the  manu- 
facture of  Sanitary  Enameled  Iron  Ware. 

CLAIMS.  2.  The  Licensor  hereby  agrees  to  suspend 

his  claims  against  the  Licensee  and  its  cus- 
tomers or  patrons  for  damages  or  profits  which 
he  may  be  entitled  to  receive  for  any  claims 
for  any  past  infringement  of  said  Letters  Pat- 
1  Op.  cit.  U.  S.  v.  S.  S.  M'fg  Co.    Record,  Vol.  II,  pp.  20-26. 


Pools  and  Associations  241 

ent  by  said  Licensee,  as  long  as  said  Licensee 
continues  to  perform  all  of  its  obligations  under 
this  contract. 

3.  So  long  as  the  Licensee  operates  under 
this  License  or  any  renewal  thereof  and  keeps 
and  performs  all  of  the  obligations  of  said  Li- 
cense herein  contained,  the  Licensor  agrees  not 
to  bring  action  against  said  Licensee  because  of 
its  use  of  any  machines,  method  or  processes 
now  or  heretofore  used  by  said  Licensee  in  the 
manufacture  of  enameled  ware,  and  to  waive 
any  and  all  claims  under  any  letters  patent  on 
any  machines,  devices,  or  processes  now  in  use 
by  said  Licensee,  and  to  grant  to  said  Licensee 
full  use  and  enjoyment  thereof. 
ROYALTIES.  4.  For  the  use  of  the  various  patents  enumer- 
ated in  "Schedule  of  Patents,"  hereto  annexed, 
the  Licensee  shall  pay  on  the  fifth  day  of  each 
month  a  royalty  amounting  to  Five  ($5.00) 
Dollars  per  day  for  each  furnace  in  operation 
during  the  preceding  month. 

This  payment  shall  be  made  to  the  Licensor 
at  his  place  of  business  in  Pittsburgh,  Pa.,  by 
cash  or  other  acceptable  remittance,  and  in 
determining  the  amount  of  this  royalty  each 
and  every  one  of  the  furnaces  owned  by  the  Li- 
censee shall  be  considered  as  in  operation  each 
day,  unless  the  said  furnace  or  furnaces  shall  be 
shut  down  for  more  than  a  period  of  six  (6)  con- 
secutive working  days.  In  case  any  of  the  fur- 
naces are  thus  shut  down  for  more  than  six  (6) 
consecutive  working  days,  the  Licensee  shall  be 
entitled  to  a  diminution  of  his  License  payment 
at  the  rate  of  Five  ($5.00)  Dollars  per  working 
day  for  the  number  of  days  shut  down. 

In  order  to  determine  the  amount  of  actual 
license  payment,  together  with  the  remittance 
hereinbefore  provided  for  payment  of  royalty, 
the  Licensee  shall  send  to  the  Licensor  a  sworn 
statement,  which  will  be  duly  verified  under 
oath  by  some  representative  of  the  Licensee, 


242 


Industrial  Combinations  and  Trusts 


designated  by  the  Licensor  showing  the  number 
of  furnaces  owned  by  the  Licensee  at  the  begin- 
ning of  the  month  which  the  report  is  intended 
to  cover  and  the  number  of  days  which  such 
furnaces  have  been  operating  consistent  with 
the  provisions  of  the  foregoing  Section  of  this 
License. 
PREFERENTIAL  5.  This  agreement  is  entered  into  with  the 
DISCOUNTS,  understanding  that  the  Licensee  has  the  priv- 
ilege of  quoting  to  jobbers  only  the  following 
additional  discounts  from  the  regular  selling 
prices  to  the  Jobbers  as  established  by  the  Li- 
censor. These  additional  discounts  when  given 
shall  appear  on  the  invoices  rendered  to  the 
Jobber. 


PRICES.  6.  The  Licensor  agrees  that  he  will  employ  a 

commission  of  six  (6)  persons,  of  which  he  is  to 
be  one  and  to  act  as  Chairman  thereof,  five  of 
whom  shall  be  designated  by  a  majority  of  the 
parties  holding  Licenses  similar  to  this  License, 
which  Commission  shall  have  supervision  of  all 
the  relations  and  transactions  between  the  par- 
ties hereto  under  this  agreement,  but  it  is  under- 
stood that  where  a  member  of  said  Commission, 
or  his  Company,  shall  be  directly  interested  in 
any  question  of  a  violation  of  the  License  to  be 
decided  by  the  said  Commission,  said  member 
shall  be  disqualified  and  a  temporary  member 
shall  be  appointed  in  his  place  by  the  remaining 
members  of  the  Commission. 

All  terms  and  conditions  relative  to  prices 
and  discounts  now  established  by  the  Licensor 
and  set  forth  in  the  annexed  schedules  and 
made  a  part  hereof,  shall  remain  in  force  and 
effect  until  other  terms,  conditions  and  pref- 
erential discounts  are  substituted  therefor  by 
the  Licensor,  which  substitution  can  only  be 
made  by  him  with  the  approval  of  a  majority  of 


Pools  and  Associations 


243 


ROYALTY 
REBATES. 


the  members  of  the  Commission,  hereinbefore 
prescribed.  Notice  of  such  changes  and  substi- 
tutions shall  be  given  from  time  to  time  in 
writing  by  the  Licensor  to  the  Licensees.  The 
Licensee  covenants  to  adhere  to  and  maintain 
such  terms,  conditions,  regulations  and  pref- 
erential discounts  as  may  be  established  by  the 
Licensor  from  time  to  time,  and  the  Licensee 
further  agrees  to  sell  no  "Seconds"  or  "Bs" 
covered  by  Schedules  4,  4-1^,  5  and  6. 

7.  If  at  the  end  of  the  fourth  month  of  the 
first  year  (said  year  beginning  June  1st,  1910) 
it  shall  appear  that  the  Licensee  has  during  the 
first  month  complied  with  all  the  terms  of  this 
agreement,  the  Licensor  shall  return  the  Li- 
censee the  following  rebate  from  the  royalties 
paid  for  said  License  for  said  first  month's 
royalties,  to  wit:  80%  of  the  amount  originally 
paid  by  the  Licensee. 

8.  At  the  termination  of  each  succeeding 
month  of  the  said  License  if  it  shall  appear  that 
the  Licensee  has  fully  complied  with  the  terms 
of  this  agreement  during  the  second  preceding 
month,  the  Licensor  shall  make  a  similar  rebate 
in  respect  to  the  royalties  paid  by  the  Licensee 
during  the  second  preceding  month. 

9.  In  case  of  failure  on  the  part  of  the  Li- 
censee to  comply  in  any  particular  with  the 
terms  of  this  agreement  during  any  month,  the 
Licensor  may  withhold  any  and  all  unpaid 
rebates  and  declare  the  same  forfeited  as  penalty 
for  such  violation  and  shall  at  once  notify  the 
Licensee  to  that  effect. 


LABELS.  13.  No  goods  manufactured  under  this  Li- 

cense shall  be  sold  unless  they  bear  a  registered 
label  (except  where  otherwise  specified)  owned 
by  the  Licensee  and  in  addition  thereto  a  Li- 
cense tag  or  label  approved  by  the  Licensor, 


244  Industrial  Combinations  and  Trusts 

which  License  tag  or  label  shall  be  placed  in  a 
visible  position  on  all  goods  made  hereunder  and 
sold  by  the  Licensee. 

14.  This  agreement  is  binding  upon  the  par- 
ties hereto,  and  the  successor  and  assigns  of  each 
of  them,  and  shall  continue  in  force  for  a  period 
of  two  years  from  the  date  hereof,  unless  pre- 
viously terminated  as  herein  provided. 

15.  This  agreement,  however,  may  be  can- 
celled by  the  Licensor  by  written  notice  upon 
repeated  breaches  by  the  Licensee  of  any  of  the 
covenants  herein  contained. 

In  Witness  Whereof,  the  parties  hereto 
have  executed  these  presents  the  day  and  year 
above  written. 


SCHEDULE  OF  PATENTS. 

Pat.  No 

Date 

Inventor 

Title 

033)941 

Sept.  26,  1899 

James  Arrott 

Dredger  for  pul- 
verulent mate- 
rial 

949>625 

Feb.  15,  1910 

E.  Ditheridge 

Pneumatic  Sieve 

939>9i8 

Nov.  9,  1909 

William  Lindsay 

Enameling  Pow- 
der Distributor. 

Exhibit  12 

memorandum  of  agreement  (called  the  eastward  agreement) 

regarding  the  trade  between  the  atlantic  ports  of  the 

u.  s.  a.  and  eastern  asiatic  ports  l 

eastward  agreement 

United  States  of  America  to  the  Straits,  Manila,  China,  and  Japan. 

For  the  better  regulation  of  the  trade  between  the  Atlantic  Ports 
of  the  United  States  of  America  and  Eastern  Asiatic  Ports,  it  is 
hereby  agreed  as  follows: — 

1.  That  on  the  basis  of  forty-one  sailings  per  annum  the  total 
shall  be  divided  as  follows: 

1  United  States  of  America  v.  American-Asiatic  Steamship  Company.  Peti- 
tion, In  equity  in  the  District  Court  of  the  United  States  for  the  Southern  Dis- 
trict of  New  York,  Exhibit  i,  pp.  27-30. 


Pools  and  Associations  245 

United  States  and  China- Japan  Line. 13  sailings 

Messrs.  Barber  &  Co.'s  Line. 13  sailings 

The  American  and  Oriental  Line. 8  sailings 

The  American-Asiatic  S.  S.  Co. 7  sailings. 

41  sailings 

No  other  sailings  can  be  admitted  without  the  consent  of  two- 
thirds  of  the  signatories  based  on  their  respective  number  of  sailings. 

The  sailings  allotted  to  each  of  the  signatories  shall  be  distrib- 
uted as  nearly  as  possible  at  regular  intervals  throughout  the  twelve 
months,  and  the  order  of  taking  the  berth  shall  be  mutually  ar- 
ranged by  the  agents  in  New  York. 

2.  That  the  fundamental  condition  of  this  agreement  is  to  be 
close  co-operation,  and  in  order  to  secure  this  result  the  rates  of 
freight  from  America  to  the  East  shall  be  controlled  and  mutually 
determined  by  the  agents  in  New  York,  who  before  naming  or 
altering  a  rate  on  any  commodity  shall  first  confer  and  agree 
amongst  themselves  as  to  the  rate  to  be  named  and/or  *  the  reduc- 
tion to  be  made. 

All  engagements  shall  be  reported  to  one  another  by  the  Agents 
in  Conference  the  first  business  day  of  each  week,  and  copies  of 
freight  lists  are  to  be  exchanged  not  less  than  three  weeks  after  the 
departure  of  the  steamer. 

3.  That  all  contracts  shall  be  taken  for  joint  account,  and  where 
such  contracts  cannot  be  divided  such  shortages  shall  be  made  good 
to  the  parties  in  arrear  out  of  the  other  contracts  previously  or  sub- 
sequently secured,  it  being  the  purpose  to  equitably  divide  all  book- 
ings. Each  line  shall,  however,  be  entitled  to  book  cargo  specifically 
for  their  next  steamer  to  be  despatched,  provided  ready  to  load 
within  30  days.  No  line  to  book  cargo  specifically  for  a  steamer  until 
allowed  to  do  so  by  a  two- thirds  majority  vote  of  the  New  York  agents, 
based  on  their  principals'  respective  number  of  allotted  sailings. 

4.  That  engagements  of  Petroleum  in  cases,  Phosphate  Rock  and 
Coal  are  not  necessarily  joint  operations,  but  competition  for  such 
articles  is  to  be  avoided  and  the  closest  possible  co-operation  is  to  be 
aimed  at.  Bookings  of  Petroleum  in  cases,  Phosphate  Rock  and 
Coal  are  to  be  reported  as  soon  as  fixed. 

5.  That  shipments  of  the  Quartermaster's  Department,  the  Navy 
(excluding  Coal),  and  the  Insular  Department,  and/or  any  other 
Government  Department,  shall  be  taken  for  joint  account  and 

1  Thus  in  original. — Ed. 


246  Industrial  Combinations  and  Trusts 

pooled  on  a  basis  to  be  agreed  between  the  respective  Agents  In 
such  a  way  that  all  may  obtain  their  proper  proportion  of  the  ben- 
efits arising  from  such  contracts.  Shipments  of  Specie  and  Explo- 
sives shall  be  dealt  with  in  like  manner. 

6.  That  no  return  of  any  description  be  given  to  Shippers,  Con- 
tractors, etc.,  and  where  Freight  Brokerages  are  paid  the  amount 
shall  not  exceed  one  and  one-quarter  per  cent.,  unless  where  mu- 
tually agreed  by  all  Agents  to  the  contrary. 

7.  That  in  order  to  avoid  unnecessary  expense  and  possible  delay, 
the  respective  parties  shall  nominate  one  of  the  firms  of  Agents  in 
New  York  to  act  for  the  time  being  as  the  mouthpiece  of  the  Asso- 
ciated Agents;  and  also  shall  appoint  one  of  their  own  number  to 
act  in  a  similar  capacity  on  this  side.  All  cabled  enquiries  regard- 
ing matters  of  policy,  important  contracts,  etc.,  shall  be  communi- 
cated to  the  respective  parties  through  this  channel,  and  their  replies 
forwarded  in  the  same  way;  but  it  is  understood  that  this  arrange- 
ment in  no  way  interferes  with  the  right  of  each  signatory  to  commu- 
nicate with  his  own  Agents  whenever  and  however  he  thinks  fit. 

8.  That  in  all  matters  of  detail  not  herein  decided  the  settlement 
shall  be  left  in  the  hands  of  the  Agents  in  New  York,  who  shall  as 
far  as  possible  be  given  a  free  hand  in  the  conduct  of  their  business. 

9.  That  where  it  is  considered  advisable  to  book  cargo  for  ac- 
count of  the  Associated  Lines,  which  through  lack  of  accommoda- 
tion on  the  regular  steamers  might  otherwise  fall  into  the  hands  of 
competitors,  such  cargo  shall  be  taken  care  of  by  chartering  addi- 
tional tonnage,  the  result  to  be  divided  in  proper  proportion  between 
the  various  interests,  and  the  loading  commission  credited  to  the 
Agents  pro  rata  to  the  share  in  the  trade  which  each  of  the  signa- 
tories hold,  based  on  their  respective  number  of  sailings. 

All  questions  connected  with  the  bookings  of  such  additional 
cargo  and  the  chartering  of  tonnage  shall  be  governed  by  a  two- 
thirds  majority  vote  of  the  New  York  Agents,  based  on  their  prin- 
cipals' respective  number  of  allotted  sailings.  Each  service  to 
charter  and  load  such  extra  tonnage  in  turn. 

10.  That  the  whole  purpose  of  this  Agreement  is  an  equitable  and 
fair  division  of  the  traffic  between  the  services,  to  work  openly  and 
fairly  with  one  another,  and  to  avoid  any  and  all  steps  by  which 
even  the  appearance  of  undue  advantage  is  given.  Should  therefore 
conditions  and  questions  arise  which  are  not  herein  provided  for, 
the  purport  and  not  the  strict  wording  of  this  Agreement  is  to  be 
considered. 


Pools  and  Associations  247 

11.  That  no  steamer  of  a  greater  carrying  capacity  than  8,000 
tons  all  told  is  to  be  loaded  under  this  Agreement,  except  by  the 
unanimous  consent  of  the  Agents. 

12.  That  should  any  disputes  arise  under  this  Agreement  they 
are  to  be  left  to  the  decision  of  the  signatories  to  this  Agreement, 
whose  voting  power  shall  be  pro  rata  to  their  share  in  the  business. 

Should  any  decision  so  arrived  at  be  objected  to  by  any  party 
or  parties  hereto,  the  matter  shall  be  referred  to  the  decision  of  two 
Arbitrators,  who  shall  be  commercial  men  in  London,  New  York, 
or  Hong  Kong,  whichever  place  in  the  opinion  of  the  majority  of 
the  signatories,  as  above,  is  best  suited  for  the  purpose,  one  to  be 
appointed  by  the  party  or  parties  claiming  or  objecting  as  the  case 
may  be,  and  the  other  by  the  party  or  parties  against  whom  the 
claim  or  objection  is  made;  or  in  the  case  of  a  question  as  to  the 
validity  of  a  settlement  by  those  parties  who  are  content  with  the 
settlement  as  presented;  with  power  to  such  nominated  Arbitrators 
to  appoint  an  Umpire  whose  decision  shall  be  final  and  conclusive 
between  all  the  parties  to  this  Agreement,  and  for  the  purposes  of 
any  such  reference  this  Agreement  shall  be  deemed  to  be  a  submis- 
sion to  Arbitration  within  the  meaning  of  the  Arbitration  Act, 
1899,  or  any  statutory  modification  or  re-enactment  thereof  for  the 
time  being  in  force,  the  provisions  whereof  shall  apply  as  far  as 
applicable. 

13.  That  this  Agreement  is  to  commence  with  steamers  sailing 
from  their  first  loading  port  in  the  U.  S.  A.,  on  or  after  April  1st, 
1905,  and  to  remain  in  force  until  cancelled  by  any  of  the  parties 
thereto  giving  six  months'  written  notice  of  their  desire  to  with- 
draw, such  notice  not  to  be  given  previous  to  1st  day  of  July,  1906. 

By  authority  of  Barber  &  Co.  Incd.,  Walter  Chambers. 
William  Adamson  &  Co.,  on  behalf  of  Shewan  Tomes  &  Co 
Per  Pro.  T.  B.  Royden,  and  by  written  authority  of  the  Ham- 
burg America  Line  and  the  Union  S.  S.  Co.  of  Hamburg 
P.  L.  Rooper. 

For  The  American  &  Oriental  Line,  Howard 
Holder  &  Partners,  Ltd.,  Alex.  Freeland,  Director, 
General  Managers 
Witness  to  the  Signatures  of 

Wm.  Adamson  &  Co.,  P.  L.  Rooper,  and  Alex.  Freeland, 

Archd.    Maclean - 
Anglo  American  Oil  Co.  Ltd., 
22,  Billiter  Street,  London,  E.  C. 


CHAPTER  X 
THE  PATENT  MONOPOLY 

NOTE 

For  several  years  past  the  United  Shoe  Machinery  Company  has 
been  regarded,  and  with  reason,  as  the  foremost  example  of  a  Patent 
Monopoly.  This  concern  is,  moreover,  a  combination,  since  prior 
to  1897  much  of  the  machinery  now  controlled  by  the  single  com- 
pany was  divided  among  four  concerns  and  was  therefore,  subject 
to  at  least  limited  competition.  In  February  1897  the  United 
Shoe  Machinery  Company  was  organized  under  the  laws  of  the 
State  of  New  Jersey.  By  means  of  an  issue  and  exchange  of  its 
capital  stock  it  took  over  the  business  of  four  concerns — the  Con- 
solidated and  McKay  Lasting  Machine  Company,  Goodyear  Shoe 
Machinery  Company,  McKay  Shoe  Machinery  Company  and 
Eppler  Welt  Machine  Company.  Since  that  time  the  United  Shoe 
Machinery  Company  has  substantially  controlled  the  shoe  ma- 
chinery business  of  the  United  States  wrhich  has  been  handled 
strictly  upon  a  lease  basis.  Powerful  as  the  company  has  been  it 
has  been  constantly  threatened  by  the  invention  of  new  types  of 
shoe  machinery.  Frequently  it  has  been  compelled  to  buy  out  such 
potential  competitors,  often  at  high  valuations.  The  license  or 
lease  system  of  the  United  Shoe  Machinery  Company  is  shown 
below  in  the  exhibits  by  a  typical  lease  contract.  There  has  also 
been  included  another  typical  lease  or  license  agreement,  that  of 
the  Motion  Picture  Patents  Company  and  one  of  the  Crown  Cork 
and  Seal  Company. 

The  last  exhibit  in  this  chapter  consists  of  excerpts  from  the 
decision  handed  down  in  March  191 2  in  the  so-called  Dick  case. 
Influential  as  was  the  decision  in  the  Dr.  Miles  Medical  Company 
case,  in  restricting  the  tendency  toward  monopolistic  control  so 
far  as  the  conditions  and  terms  of  sale  have  reference  to  unpatented 
articles,  the  Dick  case  goes  the  full  length  in  the  opposite  direction 
and  upholds  in  the  most  sweeping  language  the  power  of  concerns 
and  individuals  holding  patents  to  impose  whatsoever  conditions 

248 


The  Patent  Monopoly  249 

they  may  deem  fit  upon  the  use  of  articles  covered  by  such  patents 
or  applications.  The  dissenting  opinion  rendered  by  Mr.  Chief 
Justice  White  and  concurred  in  by  Mr.  Justice  Hughes  and  Mr. 
Justice  Lamar  condemns  in  no  uncertain  terms  the  doctrine  thus 
laid  down,  chiefly  on  grounds  of  general  public  policy.  This  deci- 
sion was  not  rendered  by  a  full  bench,  Mr.  Justice  Day  taking  no 
part  in  the  decision,  while  the  vacancy  caused  by  the  death  of 
Mr.  Justice  Harlan  remained  still  unfilled.  Hence  as  being  a  four 
to  three  decision  it  was  really  a  minority  decision.  Petitions  for  a 
rehearing  have  been  filed  and  there  is  a  chance  that  these  may  be 
granted.  Unfortunate  as  the  decision  appears  it  may  nevertheless 
have  in  it  the  germs  of  much  good.  This  arises  through  the  fact 
that  one  of  the  most  needed  things  at  the  present  time  to  check  the 
tendency  toward  monopoly  is  a  radical  reform  of  the  Patent  Laws. 
The  first  step  in  this  direction  was  taken  by  President  Taft  on 
May  10,  19 1 2  in  sending  to  Congress  a  message  asking  for  legisla- 
tion to  authorize  him  to  appoint  a  commission  to  investigate  the 
Patent  laws  and  report  changes  necessary — Ed. 

Exhibit  i 

lease  and  license  agreement  of  the  united  shoe  machinery 
company  for  certain  machines  x 

Goodyear  Department.  [Form  M.  G.  J.,  6-806.] 

Lease  and  License  Agreement  Number . 


SEWING  AND  STITCHING  MACHINES. 

This    greement  made  at  Boston,  in  the  State  of  Massachusetts, 

this day  of ,  19 — ,  between  the  United  Shoe  Machinery 

Company,  a  corporation  organized  under  the  laws  of  the  State  of 
Maine,  having  an  office  in  said  Boston,  hereinafter  referred  to  as 
the  lessor  of  the  one  part,  and  — ,  of ,  in  the  State  of ,  here- 
inafter referred  to  as  the  lessee,  of  the  other  part: 

Witnesseth  that  the  lessor,  in  consideration  of  the  covenants 
and  agreements  on  the  part  of  the  lessee  herein  contained,  does 

1  United  States  of  America  v.  United  Shoe  Machinery  Company  and  others. 
Petition,  In  the  Circuit  Court  of  the  United  States  for  the  District  of  Massa- 
chusetts, Exhibit  5,  pp.  1 13-120. 


250  Indus  [rial  Combinations  and  Trusts 

hereby  lease  to  and  license  the  lessee  under  any  letters  patent  be- 
longing to  the  lessor  or  under  which  the  lessor  has  the  right  to 
grant  such  license  affecting  any  inventions  which  are  now  or  here- 
after shall  be  embodied  therein  or  employed  in  the  operation  thereof, 
to  use  the  machine  or  machines  of  the  "Goodyear  Department" 
of  the  lessor  designated  by  number  or  numbers  in  the  following 
schedule,  viz: 

SCHEDULE  OF  MACHINES. 

Goodyear  Welt  and  Turn  Shoe  Machine,  No. 
Goodyear  Universal  Inseam  Sewing  Machine,  No. 
Goodyear  Outsole  Rapid  Lockstitch  Machine,  No. 
Extension  Edge  Attachment  (A),  No. 
Extension  Edge  Attachment  (B),  No. 
Welt  Bevelling  Attachment,   No. 

and  any  duplicate  parts,  extras,  mechanisms,  and  devices  relating 
thereto,  or  used  in  connection  therewith,  now  attached  to  or  deliv- 
ered with  the  said  designated  machine  or  machines,  or  which  may 
at  any  time  hereafter  be  obtained  from  the  lessor  or  be  added 
thereto,  by  or  with  the  consent  of  the  lessor  (the  whole  of  which 
machine  or  machines,  duplicate  parts,  extras,  mechanisms,  and 
devices  held  by  the  lessee  under  these  presents,  whether  now  or 
hereafter  delivered  to  or  in  the  possession  of  the  lessee,  is  herein- 
after referred  to  as  the  "leased  machinery"),  subject  to  the  condi- 
tions hereinafter  contained;  and  the  lessor  hereby  grants  to  the 
lessee  a  license  to  use,  in  connection  wyith  welted  boots,  shoes,  or 
other  footwear  made  by  the  lessee,  the  welts  of  which  have  been 
sewed  to  their  uppers  wholly  by  Goodyear  Welt  and  Turn  Shoe 
Machines  or  by  Goodyear  Universal,  Inseam  Sewing  Machines, 
hereby  leased  or  now  held  by  the  lessee  under  lease  from  the  lessor 
heretofore  executed,  and  the  outsoles  of  which  have  been  stitched 
to  their  welts  wholly  by  Goodyear  Outsole  Rapid  Lock-Stitch  Ma- 
chines, hereby  leased  or  now  held  by  the  lessee  under  lease  from  the 
lessor  heretofore  executed,  the  trade  name  or  trade-mark  "Good- 
year Welt,"  and  to  use,  in  connection  with  turned  boots,  shoes,  or 
other  footwear  made  by  the  lessee  the  soles  of  which  have  been 
attached  to  their  uppers  wholly  by  the  use  of  Goodyear  Welt  and 
Turn  Shoe  Machines  or  Goodyear  Universal  Inseam  Sewing  Ma- 
chines, hereby  leased  or  now  held  by  the  lessee  under  lease  from  the 
lessor  heretofore  executed,  the  trade  name  or  trade-mark  "Good- 
year Turn." 


The  Patent  Monopoly  251 

And  that  the  following  are  agreed  to  as  conditions  of  this  agree- 
ment, all  of  which  the  lessee  convenants  and  agrees  to  keep  and 
perform : 

1.  The  leased  machinery  shall  at  all  times  remain  and  be  the  sole 
and  exclusive  property  of  the  lessor  and  the  lessee  shall  have  no 
right  of  property  therein,  but  only  the  right  to  use  the  same  upon 
the  conditions  herein  contained.  The  leased  machinery  shall  be 
used  only  by  the  lessee  himself  or  by  operatives  in  his  direct  employ, 

and  only  in  the  factory  now  occupied  by  him  at ,  in  the  State 

of ,  unless  the  lessor  shall,  by  an  instrument  in  writing  signed 

by  its  president,  vice  president,  or  treasurer,  authorize  the  lessee  to 
remove  the  leased  machinery  and  to  use  the  same  elsewhere.  The 
leased  machinery  shall  not  be  transferred  or  delivered  or  sublet  to 
any  other  person  or  corporation,  and  neither  this  agreement  nor  the 
lease  nor  the  license  hereby  granted  can  be  assigned  by  the  lessee 
by  his  own  act  or  by  operation  of  law.  If  the  lessee  becomes  insol- 
vent or  bankrupt,  or  has  a  receiving  order  made  against  him,  or 
makes  or  executes  any  bill  of  sale,  deed  of  trust,  or  assignment  for 
the  benefit  of  his  creditors,  or  if  a  sale,  mortgage,  lease,  or  unauthor- 
ized removal  of  the  leased  machinery  or  any  part  thereof  be  made  or 
attempted,  or  if  any  distress  or  execution  or  attachment  be  levied 
thereon,  then  and  in  each  such  case  any  or  all  leases  of  or  licenses 
to  use  machinery  then  existing  between  the  lessor  and  the  lessee, 
whether  as  the  result  of  assignment  to  the  lessor  or  otherwise, 
shall,  at  the  option  of  the  lessor,  cease  and  determine,  and  the  pos- 
session of  and  full  right  to  and  control  of  all  machinery  the  leases 
or  licenses  of  which  are  so  terminated  shall  thereupon  revest  in  the 
lessor  free  from  all  claims  and  demands  whatsoever.  The  lessor 
and  its  agents  and  employees  shall  at  all  times  be  given  access  to 
the  leased  machinery  for  the  purpose  of  inspecting  it  or  watching 
its  use  and  operation,  or  of  altering,  repairing,  improving,  or  adding 
to  it,  or  determining  the  nature  or  extent  of  its  use,  and  the  lessee 
shall  afford  all  reasonable  facilities  therefor. 

2.  The  lessee  shall  at  all  times  and  at  his  own  expense  keep  the 
leased  machinery  in  good  and  efficient  working  order  and  condition 
and  shall  not  permit  anyone  to  injure  or  deface  or  remove  any 
plate  or  dates,  numbers,  or  other  inscriptions  now  or  hereafter 
impressed  on  or  affixed  to  the  leased  machinery  by  the  lessor.  The 
lessee  shall  obtain  from  the  lessor  exclusively,  and  shall  pay  there- 
for at  the  regular  prices  from  time  to  time  established  by  the  lessor, 
all  the  duplicate  parts,  extras,  mechanisms,  and  devices  of  every 


252  Industrial  Combinations  and  Trusts 

kind  needed  or  used  in  operating,  repairing,  or  renewing  the  leased 
machinery,  and  the  same  shall  form  part  of  the  leased  machinery, 
and  the  lessee  shall  not  otherwise  make  or  allow  to  be  made  any 
addition,  subtraction,  or  alteration  to,  from,  or  in  the  leased 
machinery  nor  interfere  with  the  proper  operation  of  the 
same. 

3.  The  leased  machinery  shall  at  all  times,  until  the  expiration 
or  termination  of  the  lease  thereof  and  license  to  use  the  same  hereby 
granted  and  the  redelivery  of  the  leased  machinery  into  the  posses- 
sion of  the  lessor  as  hereinafter  provided,  be  held  at  the  sole  risk  of 
the  lessee  from  injury,  loss,  or  destruction,  and  in  case  any  welting 
or  stitching  or  sewing  machine  or  machines  hereby  leased  shall  be 
lost  or  destroyed  by  fire  or  otherwise  before  such  expiration  or  ter- 
mination and  redelivery,  the  lessee  shall  pay  to  the  lessor  in  respect 
to  each  such  machine  so  lost  or  destroyed  the  sum  of  two  hundred 
and  twenty-five  (225)  dollars  as  partial  reimbursement  to  the  lessor 
for  such  loss  or  destruction,  and  the  lessee  shall  forthwith  return 
whatever  remains  of  all  the  machinery  so  lost  or  destroyed  to  the 
lessor  at  Beverly,  Massachusetts. 

4.  The  lessee  shall  pay  all  taxes  and  assessments  which  shall  be 
assessed  in  respect  to  the  leased  machinery  or  other  machinery  of 
the  lessor  held  by  the  lessee  under  lease  or  license  upon  whomsoever 
assessed.  All  taxes  or  assessments  in  respect  to  leases,  licenses,  or 
agreements  covering  machinery,  or  the  rights  to  payments  there- 
under, shall  be  construed,  for  the  purposes  of  this  article,  to  be 
assessed  in  respect  to  the  machinery  itself.  In  case  at  any  time  any 
unapportioned  tax  or  assessment  shall  be  assessed  to  the  lessor  in 
respect  in  part  but  not  wholly  to  machinery  of  the  lessor  in  the 
possession  of  the  lessee  the  lessee  shall  pay  to  the  lessor  such  pro- 
portionate part  of  the  total  amount  of  said  unapportioned  tax  or 
assessment  as  the  fair  valuation,  to  be  determined  by  the  lessor,  of 
said  machinery  of  the  lessor  in  the  possession  of  the  lessee  bears  to 
the  fair  valuation,  to  be  determined  by  the  lessor,  of  all  machinery 
(excepting  machinery,  if  any,  in  the  lessor's  own  possession)  in 
respect  to  which  the  unapportioned  tax  or  assessment  has  been 
assessed:  Provided,  however,  That  if  such  unapportioned  tax  or 
assessment  includes  any  tax  or  assessment  in  respect  to  tangible 
property  in  the  lessor's  own  possession  the  amount  thereof,  based 
at  the  established  rate  upon  the  fair  valuation,  to  be  determined  by 
the  lessor  of  such  property,  shall  first  be  deducted  and  the  lessee 
shall  pay  his  proportionate  part  as  aforesaid  of  the  balance  only  oi 


The  Patent  Monopoly  253 

said  unapportioned  tax  or  assessment  after  such  deduction  has  been 
made. 

5.  The  leased  machinery  shall  be  used  only  in  the  manufacture 
of  boots,  shoes,  and  other  footwear  made  by  the  lessee  known  in  the 
trade  as  "Goodyear  Welts,"  which  have  been  or  are  to  be  welted 
wholly  by  Goodyear  Welt  and  Turn  Shoe  Machines  or  Goodyear 
Universal  Inseam  Sewing  Machines  held  by  the  lessee  under  lease 
from  the  lessor,  and  the  soles  of  which  have  been  or  are  to  be  at- 
tached to  their  welts  wholly  by  Goodyear  Outsole  Rapid  Lock-Stitch 
Machines  held  by  the  lessee  under  lease  from  the  lessor,  or  in  the 
manufacture  of  boots,  shoes,  or  other  footwear  made  by  the  lessee 
known  in  the  trade  as  "Goodyear  Turns,"  the  soles  of  which  have 
been  or  are  to  be  attached  to  their  uppers  wholly  by  Goodyear  Welt 
and  Turn  Shoe  Machines  or  Goodyear  Universal  Inseam  Sewing 
Machines  held  by  the  lessee  under  lease  from  the  lessor.  The  lessee 
shall  not  represent  or  sell  as  "Goodyear  Welts"  any  boots,  shoes, 
or  other  footwear  which  are  not  welted  wholly  by  the  use  of  Good- 
year Welt  and  Turn  Shoe  Machines  or  Goodyear  Universal  Inseam 
Sewing  Machines  held  under  lease  from  the  lessor,  or  the  soles  of 
which  are  not  attached  to  their  welts  wholly  by  the  use  of  Goodyear 
outsole  rapid  lock-stitch  machines  held  under  lease  from  the  lessor 
or  as  "Goodyear  Turns"  any  boots,  shoes,  or  other  footwear  the 
soles  of  which  are  not  attached  to  their  uppers  wholly  by  the  use  of 
Goodyear  Welt  and  Turn  Shoe  Machines  or  Goodyear  Universal 
Inseam  Sewing  Machines  held  under  lease  from  the  lessor.  The 
lessee  shall  use  the  leased  machinery  to  its  full  capacity  in  the  manu- 
facture of  "Goodyear  Welts"  and  "Goodyear  Turns,"  limited 
only  by  the  number  of  welted  and  turned  boots,  shoes,  and  other 
foorwear  made  by  or  for  him. 

6.  The  lessee  shall  pay  to  the  lessor  throughout  the  full  term  of 
this  agreement  the  respective  amounts  set  forth  in  the  following 
schedule  in  respect  to  each  pair  of  welted  boots,  shoes,  or  other 
footwear,  or  portions  thereof,  manufactured  or  prepared  by  or  for 
the  lessee,  which  shall  have  been  welted  in  whole  or  in  part  or  the 
soles  of  which  shall  have  been  in  whole  or  in  part  attached  to  welts 
by  the  use  of  any  welting  or  stitching  or  sewing  machinery,  and  in 
respect  to  each  pair  of  "turned"  boots,  shoes,  or  other  footwear, 
or  portions  thereof,  manufactured  or  prepared  by  or  for  the  lessee, 
the  soles  of  which  shall  have  been  sewed  or  attached  to  their  uppers 
in  whole  or  in  part  by  the  use  of  any  sewing  or  stitching  machinery, 
viz: 


^54 


Industrial  Combinations  and  Trusts 


Schedule  of  payments  per  pair. 


Sizes. 

Welts. 

Turns. 

Form  No. — 

To  No.— 

i 
ii 

9 

10^,  inclusive 

2, 

and  over 

3  cents . . 

4  cents.  . 
6  cents. . 
4  cents. . 
6  cents.  . 
8  cents. . 

i       cent. 
\]/2  cents. 

\]A  cents. 

Youths' 

I3/^>  inclusive 

5,             "          

and  over 

i}4  cents. 

Boys' 

\]4  cents. 

Men's  . 

i}4  cents. 

Such  payments  shall  be  made  on  the  last  day  of  each  calendar 
month  in  respect  to  all  such  boots,  shoes,  and  other  footwear  manu- 
factured or  prepared  by  or  for  the  lessee  during  the  next  preceding 
calendar  month:  Provided,  however,  That  in  all  cases  when  the  lessee 
shall  pay  to  the  lessor  on  or  before  the  fifteenth  day  of  the  calendar 
month  the  amount  due  pursuant  to  the  schedule  in  this  article 
hereof  contained  for  the  next  preceding  calendar  month,  the  lessor 
will,  in  consideration  of  such  prompt  payment,  grant  a  discount  of 
fifty  per  cent  from  the  amount  so  due  for  such  preceding  calendar 
month.  The  lessee,  however,  guarantees  that  the  payments  made 
in  accordance  with  the  foregoing  schedule  of  payments  under  this 
agreement  in  respect  to  boots,  shoes,  or  other  footwear  operated 
upon  by  the  welting,  stitching,  or  sewing  machines  hereby  leased 
(after  deducting  all  abatements)  shall  amount  in  each  calendar 
year  to  at  least  fifteen  dollars  ($15)  for  each  calendar  month  for 
each  welting  or  stitching  or  sewing  machine  hereby  leased,  and  at 
the  end  of  each  calendar  year  the  lessee  shall  pay  to  the  lessor  the 
amount,  if  any,  by  which  the  total  of  such  payments  for  said  year 
is  less  than  such  guaranteed  amount.  All  payments  and  the  guar- 
antee in  this  agreement  provided  for  are  independent  of  and  in 
addition  to  all  payments  and  guarantees  provided  for  in  any  other 
leases  or  licenses  or  agreements  between  the  lessor  and  the  lessee: 
Provided,  however,  That  (excepting  in  so  far  as  is  required  by  the 
guarantees  herein  contained  or  contained  in  other  lease  and  license 
agreements  between  the  lessor  and  the  lessee),  in  case  under  any 


The  Patent  Monopoly  255 

other  "  Goodyear  Department"  lease  and  license  agreement  between 
the  lessor  and  the  lessee  covering  one  or  more  Goodyear  Welt  and 
Turn  Shoe  Machines,  Goodyear  Universal  Inseam  Sewing-Ma- 
chines, or  Goodyear  Outsole  Rapid  Lock-Stitch  Machines,  the 
lessee  shall  have  paid  to  the  lessor  the  amount  set  forth  in  the 
schedule  of  payments  in  such  lease  and  license  agreement  contained 
in  respect  to  any  pair  of  boots,  shoes,  or  other  footwear,  then  the 
lessee  shall  be  relieved  from  said  payment  hereunder  in  respect  to 
that  pair  of  boots,  shoes,  or  other  footwear. 

7.  The  lessor  may  attach  to  the  leased  machinery,  or  any  thereof, 
an  indicator  or  indicators  to  register  the  number  of  revolutions  or 
movements  of  any  part  or  parts  thereof,  and  the  lessee  shall  not 
allow  any  person  (other  than  the  lessor  or  its  agents)  to  disturb  or 
interfere  with  such  indicator  or  indicators.  In  case  any  indicator 
thus  attached  shall  from  any  cause  cease  to  correctly  indicate  or 
register,  or  shall  be  disturbed  or  out  of  repair,  or  if  the  glass  cover- 
ing any  such  indicator  shall  be  removed  or  broken  or  injured,  then, 
and  as  often  as  the  same  shall  happen,  the  lessee  shall  immediately, 
by  writing,  notify  the  lessor  and  at  the  same  time  explain  the  cir- 
cumstances under  which  the  same  has  happened.  In  case  any  such 
indicator  ceases  to  indicate  or  becomes  or  remains  inaccurate,  or  the 
glass  covering  becomes  or  remains  removed,  broken,  or  injured, 
because  of  any  fault  of  the  lessee  or  anyone  in  his  employ,  or  because 
of  the  failure  of  the  lessee  to  give  promptly  the  notice  hereinbefore 
provided  for,  then,  without  prejudice  to  any  other  rights  or  reme- 
dies of  the  lessor,  the  lessee  shall  pay  the  lessor,  without  the  right  to 
any  discount,  eight  cents  per  pair  for  each  pair  of  boots,  shoes,  or 
other  footwear  or  portions  thereof  in  the  manufacture  of  which  the 
leased  machinery  or  any  part  thereof  shall  have  been  used.  The 
lessee  shall  keep  full  and  accurate  accounts,  independently  of  any 
indicators  that  may  be  placed  upon  the  leased  machinery,  showing 
the  number  and  kind  of  boots,  shoes,  and  other  footwear  or  portions 
thereof  manufactured  or  prepared  by  or  for  the  lessee  which  have 
been  welted  in  whole  or  in  part  or  the  soles  of  which  have  been  in 
whole  or  in  part  attached  to  welts  by  the  use  of  welting  or  stitching 
or  sewing  machinery,  and  of  turned  boots,  shoes,  or  other  footwear 
or  portions  thereof  manufactured  or  prepared  by  or  for  the  lessee 
the  soles  of  which  have  been  sewed  or  attached  to  their  uppers  in 
whole  or  in  part  by  the  use  of  sewing  or  stitching  machinery,  and 
shall  allow  the  lessor  at  all  times,  by  its  agents  or  attorneys,  to 
examine  and  to  take  copies  of  such  accounts  and  entries  of  the  lessee 


256  Industrial  Combinations  and  Trusts 

as  may  serve  to  determine  the  total  number  of  such  boots,  shoes, 
or  other  footwear  or  portions  thereof;  and  the  lessee  shall  produce 
all  such  accounts  and  entries  upon  request.  The  lessee  shall  require 
each  of  his  operators  upon  the  leased  machinery  or  any  part  thereof 
to  keep,  upon  blanks  or  blank  books  to  be  furnished  by  the  lessor, 
accurate  daily  records  of  the  number  and  kind  of  boots,  shoes,  and 
other  footwear  or  portions  thereof  in  the  manufacture  or  prepara- 
tion of  which  he  has  used  the  leased  machinery  or  any  part  thereof, 
and  shall  require  his  operators  to  sign  such  records,  and,  if  requested 
so  to  do  by  the  lessor,  shall  verify  the  same  under  oath.  The  lessee 
shall  send  to  the  office  of  the  lessor  in  Boston,  on  or  before  the  fifth 
day  of  each  calendar  month,  the  original  records  for  the  next  pre- 
ceding calendar  month  kept  by  his  operators  as  above  provided  for, 
and  in  case,  in  any  calendar  month,  any  one  or  more  of  the  machines 
hereby  leased  has  been  entirely  idle,  the  lessee,  on  or  before  the  fifth 
day  of  the  next  succeeding  calendar  month,  shall  send  to  the  office 
of  the  lessor  in  Boston  the  blank  for  said  month  for  each  such  idle 
machine  marked  "not  in  use"  and  signed  by  the  lessee.  The  lessee 
shall  also  furnish  any  further  information  which  may  be  called  for 
in  relation  to  the  leased  machinery  or  the  use  thereof. 

And  that  the  following  stipulations  and  provisions  are  agreed  to : 

8.  If  at  any  time  the  lessee  shall  fail  or  cease  to  use  exclusively 
welt-sewing  and  outsole  stitching  machinery  held  by  him  under 
lease  from  the  lessor  in  the  manufacture  of  all  welted  boots,  shoes, 
or  other  footwear  made  by  or  for  him,  the  welts  or  soles  of  which 
are  sewed,  stitched,  or  attached  by  the  aid  of  machinery,  or  shall 
fail  or  cease  to  use  exclusively  turn-sewing  machinery  held  by  him 
under  lease  from  the  lessor  in  the  manufacture  of  all  turned  boots, 
shoes,  or  other  footwear  made  by  or  for  him,  the  soles  of  which  are 
sewed  or  attached  by  the  aid  of  machinery,  the  lessor,  although  it 
may  have  waived  or  ignored  prior  instances  of  such  failure  or  cessa- 
tion, may  at  its  option  terminate  forthwith  by  notice  in  writing 
any  or  all  leases  of  or  licenses  to  use  machinery  then  existing 
between  the  lessor  and  the  lessee,  whether  as  the  result  of  assign- 
ment to  the  lessor  or  otherwise,  and  the  possession  of  and  full  right 
to  and  control  of  all  machinery  the  lease  or  license  of  which  is  so 
terminated,  shall  thereupon  revest  in  the  lessor  free  from  all  claims 
and  demands  whatsoever. 

9.  The  term  of  this  agreement  shall  be  seventeen  years  from  the 
date  hereof.  The  lease  of  the  leased  machinery  and  license  to  use 
the  same  hereby  granted  shall  continue,  unless  sooner  terminated 


The  Patent  Monopoly  257 

by  the  lessor,  as  in  this  agreement  provided,  for  the  full  terra  of  this 
agreement,  but,  if  any  breach  or  default  shall  be  made  in  the  observ- 
ance of  any  one  or  more  of  the  conditions  in  this  agreement  con- 
tained or  contained  in  any  other  lease  or  license  agreement  sub- 
sisting between  the  lessor  and  the  lessee,  whether  as  the  result  of 
assignment  to  the  lessor  or  otherwise  and  expressed  to  be  obligatory 
upon  the  lessee,  the  lessor  shall  have  the  right,  by  notice  in  writing 
to  the  lessee,  to  terminate  forthwith  any  or  all  leases  of  or  licenses 
to  use  machinery  then  in  force  between  the  lessor  and  the  lessee, 
whether  as  the  result  of  assignment  to  the  lessor  or  otherwise,  and 
this  notwithstanding  that  previous  breaches  or  defaults  may  have 
been  unnoticed,  waived,  or  condoned  by  or  on  behalf  of  the  lessor. 
If,  upon  the  expiration  of  the  full  term  of  this  agreement,  the  lessor 
does  not  request  the  return  of  the  leased  machinery,  then  the  leased 
machinery  shall  continue  to  be  held  and  used  under  and  in  accord- 
ance with  the  conditions,  stipulations,  and  provisions  in  this  agree- 
ment contained,  and  this  agreement  and  the  lease  and  license  herein 
contained  shall  thereupon  be  extended  indefinitely  as  to  term;  but 
thereafter  either  the  lessee  or  the  lessor,  upon  sixty  days'  notice  in 
writing  to  the  other,  may  terminate  this  agreement  and  the  lease 
and  license  herein  contained,  whereupon  the  leased  machinery 
shall  be  delivered  forthwith  to  the  lessor,  as  hereinafter  provided. 
Upon  the  expiration  of  this  agreement  or  any  extension  thereof  or 
the  termination  of  the  lease  and  license  herein  contained,  the  lessee 
shall  forthwith  deliver  the  leased  machinery  to  the  lessor  at  Beverly, 
Massachusetts,  in  good  order,  reasonable  wear  and  tear  alone 
excepted,  and  shall  thereupon  pay  to  the  lessor  without  prejudice 
to  any  other  rights  or  remedies  of  the  lessor  such  sum  as  may  be 
necessary  to  put  the  leased  machinery  in  suitable  order  and  condi- 
tion to  lease  to  another  lessee.  The  lessee  for  himself,  his  heirs, 
executors,  and  administrators,  successors,  and  assigns,  hereby 
grants  to  the  lessor,  its  successors  and  assigns,  full  right,  power, 
and  authority  upon  such  expiration  or  termination  and  without 
prejudice  to  any  other  rights  or  remedies  of  the  lessor  to  enter  upon 
the  premises  and  into  any  factory,  room,  or  any  place  where  the 
leased  machinery,  or  any  part  thereof,  may  be,  and  take  possession 
thereof,  and  take  away  the  same;  and  in  no  case  shall  the  lessee 
have  any  claim  for  the  repayment  or  offset  of  any  sum  or  sums,  or 
any  part  thereof,  which  shall  have  been  paid  under  this  agreement 
or  in  respect  to  the  lease  or  license  herein  contained,  or  in  anywise 
in  respect  to  the  leased  machinery. 


258  Industrial  Combinations  and  Trusts 

10.  Upon  the  expiration  of  this  agreement,  or  any  extension 
thereof,  or  the  termination  of  the  lease  and  license  hereby  granted, 
the  lessee,  in  addition  to  all  other  payments  in  this  agreement  pro- 
vided for  and  without  prejudice  to  any  other  rights  or  remedies  of 
the  lessor,  shall  pay  to  the  lessor  in  respect  to  each  welting  or 
stitching  or  sewing  machine  hereby  leased  the  sum  of  one 
hundred  and  fifty  (150)  dollars  as  partial  reimbursement  to 
the  lessor  for  deterioration  of  the  leased  machinery,  expenses 
in  connection  with  the  installation  thereof,  and  instruction  of 
operators. 

11.  A  notice  in  writing,  signed  by  the  president,  a  vice  president, 
the  treasurer  or  the  assistant  treasurer  of  the  lessor  or  by  any 
assignee  of  the  lessor's  rights  hereunder,  and  posted  by  prepaid  let- 
ter, addressed  to  the  lessee  or  delivered  at  his  usual  or  last-known 
place  of  abode  or  business,  that  the  lease  and  license  hereby  granted 
is  terminated,  or  shall  be  terminated  at  the  expiration  of  a  certain 
period,  shall  be  a  sufficient  termination  of  the  lease  and  license  from 
the  time  of  posting  or  delivering  such  notice,  or  from  the  expiration 
of  the  period  therein  mentioned,  as  the  case  may  be.  Any  termina- 
tion of  the  lease  and  license  hereby  granted  shall  be  without  prej- 
udice to  any  rights  or  remedies  which  the  lessor  may  have  for 
violation  of  contract,  use  of  machines  without  right,  use  of  patented 
inventions  without  license  or  otherwise. 

12.  The  lessee  admits  the  validity  for  the  full  term  expressed  in 
the  grant  thereof  (and  every  extension  and  renewal  thereof)  of  each 
and  every  of  the  Letters  Patent  of  the  United  States  of  America 
owned  by  the  lessor  or  under  which  it  is  licensed,  any  of  the  inven- 
tions of  which  are  or  hereafter  may  be  embodied  in  the  leased 
machinery,  and  the  validity  of  and  title  of  the  lessor  to  the  exclu- 
sive ownership  of  the  trade  names  or  trade-marks  "  Goodyear  Welt" 
and  "Goodyear  Turn"  used  in  connection  with  boots,  shoes,  and 
other  footwear.  The  lessee  also  agrees  that  he  will  not  directly  or 
indirectly  infringe  or  contest  the  validity  for  the  full  term  expressed 
in  the  grant  thereof,  or  of  any  extension  or  renewal  thereof,  of  any 
of  the  Letters  Patent  referred  to  in  the  "Schedule  of  Patents" 
hereto  annexed  or  the  title  of  the  lessor  thereto,  and  that  he  will 
not  directly  or  indirectly  infringe  or  contest  the  validity  of  or  the 
title  of  the  lessor  to  the  said  trade  names  or  trade-marks  "  Goodyear 
Welt"  or  "Goodyear  Turn."  The  expiration  of  this  agreement  or 
any  extension  thereof  or  the  termination  or  cesser  of  the  lease  and 
license  hereby  granted  shall  not  in  any  way  affect  the  provisions  of 


The  Patent  Monopoly  259 

this  clause  or  release  or  discharge  the  lessee  from  the  admissions 
and  estoppels  herein  set  forth. 

13.  None  of  the  conditions,  stipulations,  or  provisions  of  this 
agreement  shall  be  held  to  have  been  waived  by  any  act  or  knowl- 
edge of  the  lessor,  its  agents  or  employees,  but  only  by  an  instru- 
ment in  writing,  signed  by  the  president,  a  vice  president,  or  the 
treasurer  of  the  lessor. 

14.  The  term  "lessor"  shall  include  the  said  United  Shoe  Ma- 
chinery Company  and  its  successors  and  assigns.  All  the  condi- 
tions, stipulations,  and  provisions  binding  on  the  lessee  shall  be 
binding  on  and  enforceable  against  his  legal  representatives.  In  the 
construction  of  this  instrument  words  relating  to  the  number  and 
gender  of  the  parties  shall  be  read  according  to  their  real  number 
and  gender. 

In  witness  whereof  the  parties  hereto  have  duly  executed  this 
instrument  in  duplicate  the  day  and  year  first  above  written. 


(If  lessee  is  a  corporation,  add  corporate  seal.) 

[here  follows  schedule  of  patents.] 

Exhibit  2 
exchange  license  agreement  of  the  motion  picture  patents 

COMPANY  ! 

Whereas  the  Motion  Picture  Patents  Co.  of  New  York  City 
(hereinafter  referred  to  as  the  "Licensor")  is  the  owner  of  all  the 
right,  title,  and  interest  in  and  to  reissued  Letters  Patent  No. 
1 2 19 2,  dated  January  12,  1902,  granted  to  Thomas  A.  Edison,  for 
kinetoscopic  film,  and  also  Letters  Patent  Nos.  578185,  580749, 
586953,  588916,  673329,  673992,  707934,  722382,  744251,  770937, 
771280,  785205,  and  785237,  for  inventions  relating  to  motion- 
picture  projecting  machines;  and 

Whereas  the  Licensor  has  licensed  the  American  Mutoscope  & 
Biograph  Co.  of  New  York  City,  the  Edison  Manufacturing  Co.  of 
Orange,  N.  J.;  the  Essanay  Co.  of  Chicago;  the  Kalem  Co.  of 
New  York  City;  George  Kleine  of  Chicago;  Lubin  Manufacturing 
Co.  of  Philadelphia;  Pathe  Freres  of  New  York  City;  the  Selig 

1  Hearings  before  the  Committee  on  Interstate  Commerce,  United  States 
Senate,  62nd  Cong.,  2nd  Sess.  1911-1912,  Exhibit  A.  pp.  1338-41. 


260  Industrial  Combinations  and  Trusts 

Polyscope  Co.  of  Chicago;  and  the  Vitagraph  Co.  of  America,  of 
New  York  City  (hereinafter  referred  to  as  "  Licensed  Manufacturers 
or  Importers"),  to  manufacture  or  import  motion  pictures  under 
the  said  reissued  letters  patent  and  to  lease  licensed  motion  pictures 
(hereinafter  referred  to  as  "licensed  motion  pictures")  for  use  on 
projecting  machines  licensed  by  the  Licensor;  and 

Whereas  the  undersigned  (hereinafter  referred  to  as  the  "Li- 
censee") desires  to  obtain  a  license  under  said  reissued  Letters 
Patent  No.  12192,  to  lease  from  the  Licensed  Manufacturers  and 
Importers  licensed  motion  pictures  and  to  sublet  the  said  licensed 
motion  pictures  for  use  on  projecting  machines  licensed  by  the 
Licensor; 

Now,  therefore,  the  parties  hereto,  in  consideration  of  the  cove- 
nants herein,  have  agreed  as  follows: 

(1)  The  Licensor  hereby  grants  to  the  Licensee,  for  the  term 
and  subject  to  the  conditions  expressed  in  the  "Conditions  of 
license"  hereinafter  set  forth,  the  license,  under  the  said  reissued 
Letters  Patent  No.  12 192,  to  lease  licensed  motion  pictures  from 
the  Licensed  Manufacturers  and  Importers  and  to  sublease  said 
licensed  motion  pictures  for  use  only  on  projecting  machines  licensed 
by  the  Licensor  under  letters  patent  owned  by  it. 

(2)  The  Licensee  covenants  and  agrees  to  conform  with  and 
strictly  adhere  to  and  be  bound  by  all  of  the  "  Conditions  of  license" 
hereinafter  set  forth,  and  to  and  by  any  and  all  future  changes  in  or 
additions  thereto,  and  further  agrees  not  to  do  or  suffer  any  of 
the  acts  or  things  thereby  prohibited,  and  that  the  Licensor  may 
place  and  publish  the  Licensee's  name  in  its  removal  or  suspended 
list  in  the  event  of  the  termination  of  this  agreement  by  the  Li- 
censor, or  in  case  of  any  violation  thereof,  and  may  direct  the 
Licensed  Manufacturers  and  Importers  not  to  lease  licensed  motion 
pictures  to  the  Licensee,  the  Licensee  hereby  expressly  agreeing 
that  such  Licensed  Manufacturers  and  Importers  shall  have  the 
right  to  cease  such  leasing  when  so  directed  by  the  Licensor;  and 
the  Licensee  further  agrees  that  the  signing  of  this  agreement  con- 
stitutes a  cancellation  of  any  or  all  agreements  for  the  sale  of 
licensed  motion  pictures  made  prior  to  this  agreement  by  and  be- 
tween the  Licensee  and  any  or  all  licensed  manufacturers  or  im- 
porters, except  as  to  any  clause  in  said  agreements  relating  to  the 
return  of  motion-picture  film  to  the  several  licensed  manufacturers 
or  importers.  It  is  further  understood  and  agreed  by  the  Licensee 
that  the  license  hereby  granted  is  a  personal  one  and  not  trans- 


The  Patent  Monopoly  261 

ferrable  or  assignable,  and  the  Licensee  hereby  recognizes  and  ac- 
knowledges the  validity  of  the  said  reissued  Letters  Patent  No. 
12192. 

CONDITIONS   OF   LICENSE. 

i.  From  the  date  of  this  agreement  the  Licensee  shall  not  buy, 
lease,  rent,  or  otherwise  obtain  any  motion  pictures  other  than 
licensed  motion  pictures  and  shall  dispose  of  any  motion  pictures 
only  by  the  subleasing  thereof  under  the  conditions  hereinafter 
set  forth. 

2.  The  ownership  of  each  licensed  motion  picture  leased  under 
this  agreement  shall  remain  in  the  Licensed  Manufacturer  or  Im- 
porter from  whom  it  may  have  been  leased,  the  Licensee,  by  the 
payment  of  the  leasing  price  acquiring  only  the  license  to  sublet 
such  motion  picture  subject  to  the  conditions  of  this  agreement. 
Such  license  for  any  motion  picture  shall  terminate  upon  the 
breach  of  this  agreement  in  regard  thereto,  and  the  Licensed  Manu- 
facturer or  Importer  from  whom  it  may  have  been  leased  shall 
have  the  right  to  immediate  possession  of  such  motion  picture, 
without  liability  for  any  leasing  price  or  other  sum,  which  the 
Licensee,  or  the  person  in  whose  possession  said  motion  picture 
is  found,  may  have  paid  therefor. 

3.  The  Licensee  shall  not  sell  nor  exhibit  licensed  motion  pictures 
obtained  from  any  Licensed  Manufacturer  or  Importer,  either  in 
the  United  States  or  elsewhere,  but  shall  only  sublet  such  licensed 
motion  pictures  [and  only  for  use  in  the  United  States  and  its 
territories]1  and  only  to  exhibitors  who  shall  exclusively  exhibit 
licensed  motion  pictures,  but  in  no  case  shall  the  exhibitor  be  per- 
mitted to  sell  or  sublet  or  otherwise  dispose  of  said  licensed  motion 
pictures. 

4.  The  leasing  price  to  be  paid  by  the  Licensee  to  the  Licensed 
Manufacturers  or  Importers,  or  the  terms  of  payment  for  or  ship- 
ment of  licensed  motion  pictures,  shall  in  no  case  be  less  or  more 
favorable  to  the  Licensee  than  that  defined  in  the  leasing  schedule 
embodied  in  this  agreement  or  any  other  substitute  leasing  schedule 
which  may  be  regularly  adopted  by  the  Licensor  and  of  which 
notice  shall  be  given  to  the  Licensee  hereafter. 

5.  To  permit  the  Licensee  to  take  advantage  of  any  standing 
order  leasing  price  mentioned  in  such  schedule,  such  standing  order 

1  Words  in  brackets  eliminated  by  Patents  Co.  by  notice  dated  Sept  13,  191 1, 
effective  Oct.  1,  1911. 


262  Industrial  Com  in  nations  and  Trusts 

with  any  Licensed  Manufacturer  or  Importer  shall  be  for  one  or 
more  prints  of  each  and  every  subject  regularly  produced  and 
offered  for  lease  by  such  manufacturer  or  importer  as  a  standing 
order  subject  and  not  advertised  as  special  by  such  Licensed 
Manufacturer  or  Importer,  and  shall  remain  in  force  for  not  less 
than  14  consecutive  days.  Any  standing  order  may  be  canceled 
or  reduced  by  the  Licensee  on  14  days'  notice.  Extra  prints  in 
addition  to  a  standing  order  shall  be  furnished  to  the  Licensee  at 
the  standing  order  leasing  price. 

6.  The  Licensee  shall  not  sell,  rent,  or  otherwise  dispose  of, 
either  directly  or  indirectly,  any  licensed  motion  pictures,  however 
the  same  shall  have  been  obtained,  to  any  persons,  firms,  or  corpora- 
tions or  agents  thereof  who  may  be  engaged  either  directly  or  in- 
directly in  selling  or  renting  motion-picture  films. 

7.  The  Licensee  shall  not  make  or  cause  to  be  made  or  permit 
others  to  make  reproductions  or  so-called  "dupes"  of  any  licensed 
motion  pictures,  nor  sell,  rent,  loan,  or  otherwise  dispose  of  or 
deal  in  any  reproductions  or  "dupes"  of  any  motion  pictures. 

8.  The  Licensee  shall  not  deliberately  remove  the  trade-mark  or 
trade  name  or  title  from  any  licensed  motion  picture,  nor  permit 
others  to  do  so,  but  in  case  any  title  is  made  by  the  Licensee,  the 
Manufacturer's  name  is  to  be  placed  thereon,  provided  that  in 
making  any  title  by  the  Licensee  the  Manufacturer's  trade-mark 
shall  not  be  reproduced. 

9.  The  Licensee  shall  return  to  each  Licensed  Manufacturer  or 
Importer  (without  receiving  any  payment  therefor,  except  that  the 
said  Licensed  Manufacturer  or  Importer  shall  pay  the  transporta- 
tion charges  incident  to  the  return  of  the  same)  on  the  1st  day  of 
every  month  commencing  seven  months  from  the  1st  day  of  the 
month  on  which  this  agreement  is  executed  an  equivalent  amount  of 
positive  motion-picture  film  in  running  feet  (not  purchased  or  leased 
over  1 2  months  before)  and  of  the  make  of  the  said  Licensed  Manu- 
facturer or  Importer  equal  to  the  amount  of  licensed  motion  pic- 
tures that  was  so  leased  during  the  seventh  month  preceding  the 
day  of  each  such  return,  with  the  exception,  however,  that  where 
any  such  motion  pictures  are  destroyed  or  lost  in  transportation 
or  otherwise  and  satisfactory  proof  is  furnished,  within  14  days 
after  such  destruction  or  loss,  to  the  Licensed  Manufacturer  or  Im- 
porter from  whom  such  motion  picture  was  leased  the  Licensed 
Manufacturer  or  Importer  shall  deduct  the  amount  so  destroyed  or 
lost  from  the  amount  to  be  returned. 


The  Patent  Monopoly  263 

10.  The  Licensee  shall  not  sell,  rent,  sublet,  loan,  or  otherwise 
dispose  of  any  licensed  motion  pictures,  however  the  same  may 
have  been  obtained,  to  any  person,  firm,  or  corporation  in  the 
exhibition  business  who  may  have  violated  any  of  the  terms  or 
conditions  imposed  by  the  Licensor  through  any  of  its  licensees 
and  of  which  violation  the  present  Licensee  may  have  had  notice. 

11.  The  Licensee  shall  not  sublease  licensed  motion  pictures  to 
any  exhibitor  unless  a  contract  with  said  exhibitor  (satisfactory  in 
form  to  the  Licensor)  is  first  exacted,  under  which  the  exhibitor 
agrees  to  conform  to  all  the  conditions  and  stipulations  of  the  pres- 
ent agreement  applicable  to  the  exhibitor ;  and  in  the  case  of  an  ex- 
hibitor who  may  operate  more  than  a  single  place  of  exhibition,  a 
similar  contract  shall  be  exacted  in  connection  with  each  place  so 
operated,  and  supplied  with  licensed  motion  pictures  by  the  Li- 
censee. 

12.  After  February  1,  1909,  the  Licensee  shall  not  sublease  any 
licensed  motion  pictures  to  any  exhibitor  unless  each  motion- 
picture  projecting  machine  on  which  the  licensed  motion  pictures 
are  to  be  used  by  such  exhibitor  is  regularly  licensed  by  the  Motion 
Picture  Patents  Co.,  and  the  license  fees  therefor  have  been  paid; 
and  the  Licensee  shall,  before  supplying  such  exhibitor  with  licensed 
motion  pictures,  mail  to  the  Motion  Picture  Patents  Co.,  at  its 
office  in  New  York  City,  a  notice,  giving  the  name  of  the  exhibitor, 
the  name  and  location  of  the  place  of  exhibition  (and,  if  requested 
to  do  so  by  the  Licensor,  its  seating  capacity,  hours  of  exhibition 
and  price  of  admission,  and  the  number  and  make  of  the  licensed 
projecting  machine  or  machines),  together  with  the  date  of  the 
commencement  of  the  subleasing,  all  in  a  form  approved  by  the 
Licensor.  The  Licensee,  when  properly  notified  by  the  Licensor 
that  the  license  fees  of  any  exhibitor  for  any  projecting  machine 
have  not  been  paid,  and  that  the  license  for  such  projecting  machine 
is  terminated,  shall  immediately  cease  to  supply  such  exhibitor 
with  licensed  motion  pictures. 

13.  The  Licensee  agrees  to  order  during  each  month  while  this 
agreement  is  in  force,  for  shipment  directly  to  the  place  of  business 
of  the  Licensee  in  the  city  for  which  this  agreement  is  signed, 
licensed  motion  pictures,  the  net  leasing  prices  for  which  shall 
amount  to  at  least  $2,500. 

14.  The  Licensee  shall,  on  each  Monday  during  the  continuance 
of  this  agreement,  make  or  mail  payment  to  each  Licensed  Manu- 
facturer and  Importer  for  all  invoices  for  licensed  motion  pictures 


264  Industrial  Combinations  and  Trusts 

which  have  been  received  by  the  Licensee  during  the  preceding 
week. 

15.  This  agreement  shall  extend  only  to  the  place  of  business  for 
the  subleasing  of  motion  pictures  maintained  by  the  Licensee  in 
the  city  for  which  this  agreement  is  signed,  and  the  Licensee  agrees 
not  to  establish  or  maintain  a  place  of  business  for  the  subleasing 
of  motion  pictures,  or  from  which  motion  pictures  are  delivered  to 
exhibitors,  in  any  other  city,  unless  an  agreement  for  such  other 
city,  similar  to  the  present  agreement,  is  first  entered  into  by  and 
between  the  Licensee  and  the  Licensor. 

16.  This  Licensor  agrees  that  before  licensing  any  person,  firm, 
or  corporation  in  the  United  States  (not  including  its  insular  terri- 
torial possessions  and  Alaska)  to  lease  licensed  motion  pictures 
from  Licensed  Manufacturers  and  importers  and  to  sublease  such 
motion  pictures,  it  will  exact  from  each  such  licensee  an  agreement 
similar  in  terms  to  the  present  agreement,  in  order  that  all  licensees 
who  may  do  business  with  the  Licensed  Manufacturers  and  Im- 
porters will  be  placed  in  a  position  of  exact  equality. 

19.1  It  is  understood  and  specifically  covenanted  by  the  Licensee 
that  the  Licensor  may  terminate  this  agreement  on  14  days'  written 
notice  to  the  Licensee  of  its  intention  so  to  do,  and  that  if  the 
Licensee  shall  fail  to  faithfully  keep  and  perform  the  foregoing 
terms  and  conditions  of  lease,  or  any  of  them,  or  shall  fail  to  pay 
the  leasing  price  for  any  motion  pictures  supplied  by  any  Licensed 
Manufacturer  or  Importer  when  due  and  payable  according  to 
the  terms  of  this  agreement,  the  Licensor  shall  have  the  right  to 
place  the  Licensee's  name  on  an  appropriate  suspended  list,  which 
the  Licensor  may  publish  and  distribute  to  its  other  licensees  and  to 
exhibitors  and  to  the  Licensed  Manufacturers  and  Importers  and 
to  direct  the  Licensed  Manufacturers  and  Importers  not  to  lease 
license  motion  pictures  to  the  Licensee,  and  the  exercise  of  either 
or  both  of  these  rights  by  the  Licensor  shall  not  be  construed  as  a 
termination  of  this  license,  and  the  Licensor  shall  also  have  the 
right  in  such  case,  upon  appropriate  notice  to  the  Licensee,  to 
immediately  terminate  the  present  license,  if  the  Licensor  shall  so 
elect,  without  prejudice  to  the  Licensor's  right  to  sue  for  and 
recover  any  damages  which  may  have  been  suffered  by  such  breach 
or  noncompliance  with  the  terms  and  conditions  hereof  by  the 
Licensee,  such  breach  or  noncompliance  constituting  an  infringe- 
ment of  said  reissued  letters  patent  It  is  further  agreed  by  the 
1  Thus  in  original. — Ed. 


The  Patent  Monopoly  265 

Licensee  that  if  this  agreement  is  terminated  by  the  Licensor  for 
any  breach  of  any  condition  hereof,  the  right  to  possession  of  all 
licensed  motion  pictures  shall  revert,  20  days  after  notice  of  such 
termination,  to  the  respective  Licensed  Manufacturers  and  Im- 
porters from  whom  they  were  obtained  and  shall  be  returned  to 
such  Licensed  Manufacturers  or  Importers  at  once  after  the  expira- 
tion of  that  period. 

20.  It  is  understood  that  the  terms  and  conditions  of  this  license 
may  be  changed  at  the  option  of  the  Licensor  upon  14  days'  written 
notice  to  the  Licensee;  but  no  such  change  shall  be  effective  and 
binding  unless  duly  ratified  by  an  officer  of  the  Licensor. 
Leasing  prices  (per  running  foot)  of  licensed  positive  motion  pictures. 

Cents. 

List 11 

Standing  order 13 

Films  leased  between  2  and  4  months  after  release  date 9 

Films  leased  between  4  and  6  months  after  release  date 7 

Films  leased  over  6  months  after  release  date 5 

A  rebate  of  10  per  cent  will  be  allowed  on  all  leases  of  licensed 
motion  pictures,  except  at  the  7-cent  and  5-cent  prices,  which  are 
net;  said  rebates  to  be  due  and  payable  between  the  1st  and  15th 
days  of  each  of  the  months  of  March,  May,  July,  September, 
November,  and  January  on  all  films  leased  during  the  two  months 
preceding  each  said  period,  provided  all  the  terms  and  conditions 
of  this  license  agreement  have  been  faithfully  observed. 

TERMS. 

All  shipments  are  made  f.  o.  b.  lessor's  office  at  lessee's  risk. 
All  motion-picture  films  are  to  be  shipped  to  lessee's  office  only. 
The  lengths  at  which  motion-picture  films  are  listed  and  leased 
are  only  approximate. 

Motion  Picture  Patents  Co., 
By  D.  MacDonald,  General  Manager. 

(Licensee's  signature.) , 

Greater  New  York  Film  Rental  Co., 
-,  Secretary. 


Place  of  business  for  which  this  license  is  granted,  No.  24  Union 
Square,  New  York,  N.  Y. 
January  20,  1909. 


266  Industrial  Combinations  and  Trusts 

Exhibit  3 
crown  cork  and  seal  company  ! 

Form  of  license  and  lease  of  automatic  power  Crown  soda  machine 
from  the  Crown  Cork  &  Seal  Co.,  of  Baltimore  city,  lessor, 
to . 

The  Crown  Cork  &  Seal  Co.,  of  Baltimore  city,  hereby  licenses 

and  leases  to ,  lessee,  one  automatic  power  Crown 

soda  machine  under  United  States  Letters  Patent  Nos.  473776, 
April  26,  1892;  608158,  July  26,  1895;  609209,  August  16,  1898; 
658354,  December  5,  1899;  and  also  patent  applications  filed  in 
the  United  States  Patent  Office,  to  be  used  only  by  said  lessee 
at . 

The  lessee  agrees  to  pay  therefor  $1,200,  f.  o.  b.  Baltimore,  30 
days  after  date  of  shipment  of  invoice,  $6  per  month  for  the  whole 
term  of  the  lease,  the  first  payment  to  be  made  on  the  last  day  of  the 
month  succeeding  shipment,  and  on  the  last  day  of  each  succeeding 
month  thereafter. 

The  lease  and  license  are  granted  for  the  full  term  for  which 
said  patent  was  originally  granted,  to  writ,  for  17  years  from  date, 
and  shall  continue  during  that  term,  without  reference  to  any  de- 
cision as  to  the  validity  of  any  said  patents. 

The  license  and  lease  are  granted  upon  the  following  conditions: 
The  said  machine  shall  be  used  only  in  connection  with  crown 
corks  purchased  by  the  lessee  directly  from  lessor;  crowns  not  fit 
for  service  may  be  returned  at  the  Crown  Cork  &.Seal  Co.'s  ex- 
pense before  use  and  within  30  days  from  date  of  invoice.  The 
lessor  shall  be  sole  judge  of  the  origin  or  manufacture  of  crowns 
returned;  the  lessor  shall  not  be  liable  for  any  consequential  dam- 
ages or  for  any  abatement  in  the  rent  or  any  loss  other  than  such 
return  of  crowns  on  account  of  alleged  defects  in  crowns.  The  ma- 
chine shall  be  kept  in  repair  by  the  lessee  at  its  own  expense,  but 
the  repair  parts  shall  be  purchased  from  the  lessor  at  its  regular 
catalogue  prices. 

The  Crown  Cork  &  Seal  Co.  shall  at  all  times  have  access  to  the 

1  Hearings  before  the  Committee  on  the  Judiciary  on  Trust  and  Patent 
Legislation,  House  Reports — Nos.  11380-11381,  15926,  19959.  62nd  Congress, 
2nd  Session,  1911-1912.  Trust  Legislation  Serial  No.  2,  Patent  Legislation 
Serial  No.  1,  p.  164. 


The  Patent  Monopoly  267 

machine  and  under  such  conditions,  however,  as  shall  not  interfere 
with  its  operation. 

This  lease  and  license  shall  not  be  subject  to  either  voluntary 
or  involuntary  assignment,  but  upon  surrender  of  the  license  and 
the  payment  of  all  arrears  thereunder,  the  Crown  Cork  &  Seal  Co. 
of  Baltimore  City  will  issue  to  such  person  as  the  lessee  may  des- 
ignate a  new  license,  reserving  only  the  rentals  thereafter  maturing 
and  otherwise  identical  with  this  license. 

If  said  lessee  shall  violate  or  fail  to  perform  any  of  the  terms  or 
conditions  of  this  instrument,  then  this  lease  or  license  shall,  at  the 
option  of  the  lessor,  be  null  and  void,  and  said  Crown  Cork  &  Seal 
Co.  of  Baltimore  City  shall  have  the  right  at  any  time  to  take 
possession  of  the  machine. 

This  license  shall  not  be  valid  unless  confirmed  by  countersigna- 
ture of  the  Crown  Cork  &  Seal  Co.  at  its  home  office  in  Baltimore. 

Witness  the  signatures  of  said  parties  this  day  of , 

190 — . 

LICENSE   TO   OPERATE. 

Crown  cork  system  and  automatic  crown  machine. 

March  14,  19 10. 
To  the  Crown  Seal  &  Cork  Co.,  Baltimore: 

We  hereby  make  application  for  license  to  operate  your  crown 
cork  system  and  automatic  crown  machine,  as  covered  by  patents, 
No.  638354,  dated  December  5,  1899,  and  No.  643973,  dated  Feb- 
ruary 20,  1900,  to  be  used  in  Boston,  Mass.,  and  request  you  to 
forward  to  our  address  one  automatic  crown  machine,  at  $1,800, 
f.   o.   b.,   Baltimore. 

Upon  the  granting  of  the  license  we  agree  and  obligate  ourselves 
that  the  system  and  machine  shall  only  be  used  and  operated  by 
us  in  connection  with  crown  corks,  purchased  from  the  Crown  Cork 
&  Seal  Co.,  and  bottles  made,  by  properly  authorized  manufac- 
turers, with  the  company's  standard  finishing  tools. 

It  is  agreed  that  the  price  of  crown  corks  (plain)  shall  not  ex- 
ceed 25  cents  per  gross,  f.  o.  b.,  Baltimore.     It  is  agreed  that  the 

shall  have  the  benefit  of  any  general  reduction  in 

the  price  of  crown  corks. 

It  is  further  agreed  that  no  claims  for  consequential  damages 
shall  be  allowed  by  the  Crown  Cork  &  Seal  Co. 


268  Industrial  Combinations  and  Trusts 


AGREEMENT  OF  LICENSE  AND  LEASE  OF  ONE  CROWN  MACHINE. 

The  Crown  Cork  &  Seal  Co.,  of  Baltimore  City,  called  the  Crown 

Co.,  hereby  licenses  and  leases  to ,  doing  business  at 

Boston,  Mass.,  called  the  lessee,  one  Crown  machine  of  the  stand- 
ard type  below  mentioned,  and  does  hereby  license  said  lessee  to 
use  for  the  term  and  within  the  terms  and  limitations  herein  set 
forth,  the  Crown  Co.'s  cork  system,  i.  e.,  the  said  machine,  and 
processes.  This  license  is  granted  under  the  following  United 
States  patents,  to  wit:  No.  473776,  April  26,  1892;  No.  608158, 
July  26,  1898;  No.  638354,  December  5,  1899;  No.  643973,  Feb- 
ruary 20,  1900;  No.  779991,  January  10,  1905;  No.  908688,  Jan- 
uary 5,  1909,  and  other  letters  patent  heretofore  or  hereafter 
granted  to  the  Crown  Co. 

Type  of  machine. — The  type  of  machine  so  leased,  and  annual 
rental  payable  therefor,  is  the  following  (i.  e.,  the  one  not  canceled): 

Machine  type,  automatic  power  Crown  beer  machine (rent), 

$180. 

Term  of  lease. — The  term  of  this  agreement  commences  on  the 
date  hereof  and  continues  until  terminated  as  herein  provided. 
Either  the  Crown  Co.  or  lessee  may  at  their  option,  respectively, 
terminate  this  agreement. 

Rent. — The  lessee  shall  pay  to  the  Crown  Co.  the  annual  rent 
above  stated  for  the  type  of  machine  leased ;  the  rent  shall  be  paya- 
ble in  equal  quarterly  instalments  on  the  1st  days  of  January, 
April,  July,  and  October;  the  first  instalment  shall  commence  on 
the  first  day  of  the  month  succeeding  the  shipment  of  the  machine, 
and  shall  be  a  due  proportion  for  the  time  from  such  date  to  the 
first  quarterly-payment  date. 

Termination. — This  lease  and  license  may  be  terminated  by 
either  party  at  their  options,  respectively,  and  shall  terminate  on 
the  date  fixed  therefor  as  herein  provided.  The  Crown  Co.  may 
terminate  the  same  by  written  notice  addressed  to  the  lessee  at 
his  address  herein  given,  mailed  at  Baltimore,  and  shall  take  effect 
60  days  after  the  mailing  date.  The  lessee  may  terminate  by  sim- 
ilar written  notice  addressed  to  the  Crown  Co.  at  Baltimore,  to- 
gether with  the  delivery  of  the  machine,  f.  o.  b.  Baltimore,  to  the 
Crown  Co.,  and  termination  by  the  lessee  shall  take  effect  on  such 
delivery,  and  shall  not  take  effect  unless  or  until  such  delivery  is 
made.  No  abatement  of  rent  shall  be  made  while  the  machine  is 
in  the  lessee's  possession  or  until  such  delivery  at  Baltimore.    On 


The  Patent  Monopoly  269 

any  termination,  all  liabilities  of  the  lessee  to  the  Crown  Co.,  includ- 
ing arrears  of  rent,  and  a  due  proportion  of  the  accruing  quarter's 
rent  to  the  date  it  takes  effect,  shall  be  at  once  due  and  payable. 

And  the  said  parties  hereby  agree  as  follows:  The  lessee  shall  not 
be  obliged  to  insure  the  machine  or  be  liable  for  its  value  destroyed 
by  fire  or  lost  in  transportation.  All  deliveries  of  the  machine  by 
or  to  the  Crown  Co.  shall  be  f.  o.  b.  Baltimore,  and  the  lessee  shall 
pay  all  transportation  charges  and  all  taxes  on  the  machine.  The 
said  machine  shall  be  used  only  by  said  lessee  at  his  place  of  busi- 
ness in  the  city  above  stated.  The  lessee  shall  keep  the  machine 
in  good  working  order  and  condition  at  his  own  expense  and  pay 
the  cost  of  repair  of  any  machine  not  in  such  condition  when  re- 
turned to  the  Crown  Co.,  whether  the  lease  be  terminated  by  either 
party.  Repair  parts  must  be  obtained  from  the  Crown  Co.  only. 
The  Crown  Co.  shall  in  no  event  be  liable  for  any  consequential 
damages  or  injury  to  business  claimed  to  arise  from  alleged  defects 
in  leased  machines  or  for  defects  in  quality  of  or  failure  to  deliver 
crowns;  nor  shall  the  payment  of  the  rent  be  affected  thereby. 

This  license  and  lease  shall  not  be  subject  to  voluntary  or  involun- 
tary alienation,  but  upon  surrender  hereof  and  the  payment  of  all 
arrears  hereunder  and  all  of  the  lessee's  liability  to  the  Crown  Co., 
the  Crown  Co.  will  issue  to  the  lessee's  nominee  a  new  lease  and 
license,  reserving  only  the  rentals  thereafter  maturing  and  other- 
wise identical  with  this  instrument. 

This  instrument  is  not  valid  unless  signed  or  confirmed  by  the 
Crown  Co.  at  its  home  office,  Baltimore,  Md. 

Dated  1st  day  of  June,  191 1. 


The  Crown  Cork  &  Seal  Co. 


Secretary. 

Exhibit  4 

sidney  henry  v.  a.  b.  dick  company  l 

Mr.  Justice  Lurton  delivered  the  opinion  of  the  court: 
This  cause  comes  to  this  court  upon  a  certificate  under  the  sixth 
section  of  the  court  of  appeals  act  of  March  31,  1891. 

1  Will  appear  in  223  or  224  U.  S.  The  fact  that  the  excerpts  in  this  exhibit  are 
taken  from  an  advance  copy  of  the  decree  will  account  for  such  slight  differences 
in  punctuation  and  the  use  of  italics  as  may  be  observed. — Ed. 


270  Industrial  Combinations  and  Trusts 

The  facts  and  the  questions  certified,  omitting  the  terms  of  the 
injunction  awarded  by  the  circuit  court,  are  these: 

This  action  was  brought  by  the  complainant,  an  Illinois  corporation,  for  the 
infringement  of  two  letters  patent,  owned  by  the  complainant,  covering  a  stencil- 
duplicating  machine  known  as  the  rotary  mimeograph.  The  defendants  are 
doing  business  as  copartners  in  the  city  of  New  York.  The  complainants  sold 
to  one  Christina  B.  Skou,  of  New  York,  a  rotary  mimeograph  embodying  the 
invention  described  and  claimed  in  said  patents  under  license  which  was  attached 
to  said  machine,  as  follows: 

"license  restriction. 

"This  machine  is  sold  by  the  A.  B.  Dick  Co.  with  the  license  restriction  that 
it  may  be  used  only  with  the  stencil  paper,  ink,  and  other  supplies  made  by  A.  B. 
Dick  Co.,  Chicago,  United  States  of  America. 

"The  defendant,  Sidney  Henry,  sold  to  Miss  Skou  a  can  of  ink  suitable  for 
use  upon  said  mimeograph  with  knowledge  of  the  said  license  agreement  and 
with  the  expectation  that  it  would  be  used  in  connection  with  said  mimeograph. 
The  ink  sold  to  Miss  Skou  was  not  covered  by  the  claims  of  said  patent. " 

QUESTION   CERTIFIED. 

Upon  the  facts  above  set  forth,  the  question  concerning  which  this  court  de- 
sires the  instruction  of  the  Supreme  Court  is: 

Did  the  acts  of  the  defendants  constitute  contributory  infringement  of  the 
complainant's  patents? 

There  could  have  been  no  contributory  infringement  by  the  de- 
fendants, unless  the  use  of  Miss  Skou's  machine  with  ink  not  made 
by  the  complainants  would  have  been  a  direct  infringement.  It 
is  not  denied  that  she  accepted  the  machine  with  notice  of  the  con- 
ditions under  which  the  patentee  consented  to  its  use.  Nor  is  it 
denied  that  thereby  she  agreed  not  to  use  the  machine  otherwise. 
What  defendants  say  is  that  this  agreement  was  collateral,  and 
that  its  validity  depended  upon  principles  of  general  law,  and  that 
if  valid  the  only  remedy  is  such  as  is  afforded  by  general  principles 
of  law.  Therefore  they  say  that  the  suit  is  not  one  arising  under 
the  patent  law,  and  one  not  cognizable  in  a  Federal  court  unless 
diversity  of  citizenship  exists. 


We  are  unable  to  assent  to  these  suggestions.  We  do  not  pre- 
scribe the  jurisdiction  of  courts,  Federal  or  State,  but  only  give 
effect  to  it  as  fixed  by  law.  If  a  bill  asserts  a  right  under  the  patent 
law  to  sell  a  patented  machine  subject  to  restrictions  as  to  its  use, 
and  alleges  a  use  in  violation  of  the  restrictions  as  an  infringement 


The  Patent  Monopoly  271 

of  the  patent,  it  presents  a  question  of  the  extent  of  the  patentee's 
privilege,  which,  if  determined  one  way,  brings  the  prohibited  use 
within  the  provisions  of  the  patent  law,  or,  if  determined  the  other 
way,  brings  into  operation  only  principles  of  general  law.  Ob- 
viously a  suit  for  infringement,  which  must  turn  upon  the  scope 
of  the  monopoly  or  privilege  secured  to  a  patentee,  presents  a  case 
arising  under  the  patent  law.  The  jurisdiction  of  the  circuit  court 
over  such  cases  has,  for  more  than  a  century,  been  exclusive  by  the 
express  terms  of  the  statute,  although  for  the  most  part  its  jurisdic- 
tion over  other  kinds  of  suits  arising  under  the  Constitution  and 
laws  of  the  United  States  is  only  concurrent  with  that  of  the  State 
courts. 


That  the  license  agreement  constitutes  a  contract  not  to  use 
the  machine  in  a  prohibited  manner  is  plain.  That  defendants 
might  be  sued  upon  the  broken  contract,  or  for  its  enforcement  or 
for  the  forfeiture  of  the  license,  is  likewise  plain.  But  if  by  the  use 
of  the  machine  in  a  prohibited  way  Miss  Skou  infringed  the  patent, 
then  she  is  also  liable  to  an  action  under  the  patent  law  for  infringe- 
ment. Now,  that  is  primarily  what  the  bill  alleged,  and  this  suit 
is  one  brought  to  restrain  the  defendants  as  aiders  and  abettors  to 
her  proposed  infringing  use. 


The  books  abound  in  cases  upholding  the  right  of  a  patentee 
owner  of  a  machine  to  license  another  to  use  it  subject  to  any 
qualification  in  respect  of  time,  place,  manner,  or  purpose  of  use 
which  the  licensee  agrees  to  accept.  Any  use  in  excess  of  the 
license  would  obviously  be  an  infringing  use  and  the  license  would 
be  no  defense.  (Robinson  on  Patents,  sees.  915,  916,  and  notes.) 
This  is  so  elementary  we  shall  not  stop  to  cite  cases. 

The  contention  is  not  that  a  patentee  may  not  permit  the  use  of  a 
patented  thing  with  such  qualifications  as  he  sees  fit  to  impose,  and 
that  a  prohibited  use  will  be  an  infringing  one,  but  that  he  can  only 
keep  the  article  within  the  control  of  the  patent  by  retaining  the 
title.  To  put  the  contention  in  another  form — it  is  that  any  transfer 
of  the  patentee's  property  right  in  a  patented  machine  carries  with 
it  the  right  to  use  the  entire  invention  so  long  as  the  identity  of  the 
machine  is  preserved,  irrespective  of  any  restrictions  placed  by  the 
patentee  upon  the  use  of  the  article  and  accepted  by  the  buyer. 


272  Industrial  Combinations  and  Trusts 

It  is  said  that  by  such  a  sale  the  patentee  "disposes  of  all  his  rights 
under  his  patent,  and  thereby  removes  the  article  from  the  opera- 
tion of  the  patent  law."  If  he  attempts  to  sell  the  machine 
for  specified  uses  only  and  prohibit  all  others,  the'  restriction  is 
disposed  of  as  constituting  a  collateral  agreement,  such  as  any 
vendor  of  personal  property  might  impose,  and  enforceable,  if 
valid  at  all,  only  as  a  collateral  contract. 

The  issue  is  a  plain  one.  If  it  be  sound,  it  concludes  the  case,  and 
our  response  should  be  a  negative  one,  since  the  violation  of  a  mere 
collateral  contract,  which  is  not  also  an  infringement  of  the  patent, 
would  not  be  a  case  arising  under  the  patent  law.  But  is  it  true  that 
where  a  patentee  sells  his  patented  machine  for  a  specific  and 
limited  use,  he  does  not  thereby  reserve  to  himself,  as  a  patentee, 
the  exclusive  right  to  all  unpermitted  uses  which  may  be  made  of 
his  invention  as  embodied  in  the  machine  sold?  Obviously,  this  is 
a  question  arising  under  the  patent  law.  By  a  sale  of  a  patented 
article  subject  to  no  conditions  the  purchaser  undeniably  acquires 
the  right  to  use  the  article  for  all  the  purposes  of  the  patent  so  long 
as  it  endures.  He  may  use  it  where,  when,  and  how  he  pleases, 
and  may  dispose  of  the  same  unlimited  right  to  another.  This  has 
long  been  the  settled  doctrine  of  this  and  all  patent  courts 


An  absolute  and  unconditional  sale  operates  to  pass  the  patented 
thing  outside  the  boundaries  of  the  patent,  because  such  a  sale 
implies  that  the  patentee  consents  that  the  purchaser  may  use  the 
machine  so  long  as  its  identity  is  preserved.  This  implication 
arises,  first,  because  a  sale,  without  reservation,  of  a  machine  whose 
value  consists  in  its  use,  for  a  consideration,  carries  with  it  the 
presumption  that  the  right  to  use  the  particular  machine  is  to 
pass  with  it.  The  rule  and  its  reason  is  thus  stated  in  Robinson  on 
Patents  (sec.  824): 

The  sale  must,  furthermore,  be  unconditional.  Not  only  may  the  patentee 
impose  conditions  limiting  the  use  of  the  patented  article  upon  his  grantees 
and  express  licensees,  but  any  person  having  the  right  to  sell  may  at  the  time 
of  sale  restrict  the  use  of  his  vendee  within  specific  boundaries  of  time  or  place 
or  method,  and  these  will  then  become  the  measure  of  the  implied  license  aris- 
ing from  the  sale. 

The  argument  for  the  defendants  ignores  the  distinction  between 
the  property  right  in  the  materials  composing  a  patented  machine 
and  the  right  to  use  for  the  purpose  and  in  the  manner  pointed  out 


The  Patent  Monopoly  273 

by  the  patent.  The  latter  may  be  and  often  is  the  greater  element 
of  value,  and  the  buyer  may  desire  it  only  to  apply  to  some  or  all  of 
the  uses  included  in  the  invention.  But  the  two  things  are  separable 
rights.  If  sold  unreservedly,  the  right  to  the  entire  use  of  the  inven- 
tion passes,  because  that  is  the  implied  intent;  but  this  right  to 
use  is  nothing  more  nor  less  than  an  unrestricted  license  presumed 
from  an  unconditional  sale.  A  license  is  not  an  assignment  of  any 
interest  in  the  patent.  It  is  a  mere  permission  granted  by  the 
patentee.  It  may  be  a  license  to  make,  sell,  and  use,  or  it  may  be 
limited  to  any  one  of  these  separable  rights.  If  it  be  a  license  to 
use,  it  operates  only  as  a  right  to  use  without  being  liable  as  a  in- 
fringer. If  a  licensee  be  sued,  he  can  escape  liability  to  the  patentee 
for  the  use  of  his  invention  by  showing  that  the  use  is  within  his 
license.  But  if  his  use  be  one  prohibited  by  the  license,  the  latter 
is  of  no  avail  as  a  defense.  As  a  license  passes  no  interest  in  the 
monopoly,  it  has  been  described  as  a  mere  waiver  of  the  right  to 
sue  by  the  patentee.    (Robinson  on  Patents,  sees.  806,  808.) 


It  is  plain  from  the  power  of  the  patentee  to  subdivide  his  exclu- 
sive right  of  use  that  when  he  makes  and  sells  a  patented  device 
that  the  extent  of  the  license  to  use  which  is  carried  by  the  sale 
must  depend  upon  whether  any  restriction  was  placed  upon  the 
use  and  brought  home  to  the  person  acquiring  the  article. 

That  here  the  patentee  did  not  intend  to  sell  the  machine  made 
by  it  subject  to  an  unrestricted  use  is  of  course  undeniable  from 
the  words  upon  the  machine,  viz: 

LICENSE   RESTRICTION. 

This  machine  is  sold  by  the  A.  B.  Dick  Co.,  with  the  license  restriction  that  it 
may  be  used  only  with  the  stencil,  paper,  ink,  and  other  supplies  made  by  A.  B. 
Dick  Co. 


If,  then,  we  assume  that  the  violation  of  restrictions  upon  the 
use  of  a  machine  made  and  sold  by  the  patentee  may  be  treated  as 
infringement,  we  come  to  the  question  of  the  kind  of  limitation 
which  may  be  lawfully  imposed  upon  a  purchaser. 

To  begin  with,  the  purchaser  must  have  notice  that  he  buys  with 
only  a  qualified  right  of  use.  He  has  a  right  to  assume,  in  the  ab- 
sence of  knowledge,  that  the  seller  passes  an  unconditional  title 
to  the  machine,  with  no  limitations  upon  the  use.    Where,  then,  is 


274  Industrial  Combinations  and  Trusts 

the  line  between  a  lawful  and  an  unlawful  qualification  upon  the 
use?  This  is  a  question  of  statutory  construction.  But  with  what 
eye  shall  we  read  a  meaning  into  it?  It  is  a  statute  creating  and 
protecting  a  monopoly.  It  is  a  true  monopoly,  one  having  its 
origin  in  the  ultimate  authority,  the  Constitution.  Shall  we  deal 
with  the  statute  creating  and  guaranteeing  the  exclusive  right  which 
is  granted  to  the  inventor  with  the  narrow  scrutiny  proper  when  a 
statutory  right  is  asserted  to  uphold  a  claim  which  is  lacking  in 
those  moral  elements  which  appeal  to  the  normal  man?  Or  shall 
we  approach  it  as  a  monopoly  granted  to  subserve  a  broad  public 
policy,  by  which  large  ends  are  to  be  attained,  and  therefore  to  be 
construed  so  as  to  give  effect  to  a  wise  and  beneficial  purpose?  That 
we  must  neither  transcend  the  statute  nor  cut  down  its  clear  mean- 
ing is  plain 


If  the  stipulation  in  an  agreement  between  patentees  and  dealers 
in  patented  articles,  which,  among  other  things,  fixed  a  price  below 
which  the  patented  articles  should  not  be  sold,  wTould  be  a  reason- 
able and  valid  condition,  it  must  follow  that  any  other  reasonable 
stipulation  not  inherently  violative  of  some  substantive  law,  im- 
posed by  a  patentee  as  part  of  a  sale  of  a  patented  machine,  would 
be  equally  valid  and  enforceable.  It  must  also  follow  that  if  the 
stipulation  be  one  which  qualifies  the  right  of  use  in  a  machine 
sold  subject  thereto,  so  that  a  breach  would  give  rise  to  a  right  of 
action  upon  the  contract,  it  would  be  at  the  same  time  an  act  of  in- 
fringement, giving  to  the  patentee  his  choice  of  remedies. 

But  it  has  been  very  earnestly  said  that  a  condition  restricting 
the  buyer  to  use  it  only  in  connection  with  ink  made  by  the  patentee 
is  one  of  a  character  which  gives  to  a  patentee  the  power  to  extend 
his  monopoly  so  as  to  cause  it  to  embrace  any  subject  not  within 
the  patent  which  he  chooses  to  require  that  the  invention  shall  be 
used  in  connection  with.  Of  course  the  argument  does  not  mean 
that  the  effect  of  such  a  condition  is  to  cause  things  to  become 
patented  which  were  not  so  without  the  requirement.  The  stencil, 
the  paper,  and  the  ink  made  by  the  patentee  will  continue  to  be 
unpatented.  Anyone  will  be  as  free  to  make,  sell,  and  use  like 
articles  as  they  would  be  without  this  restriction,  save  in  one  par- 
ticular, namely,  they  may  not  be  sold  to  a  user  of  one  of  the  pat- 
entee's machines  with  intent  that  they  shall  be  used  in  violation 
of  the  license.     To  that  extent  competition  in  the  sale  of  such 


The  Patent  Monopoly  275 

articles,  for  use  with  the  machine,  will  be  affected,  for  sale  to  such 
users  for  infringing  purposes  will  constitute  contributory  infringe- 
ment. But  the  same  consequence  results  from  the  sale  of  any 
article  to  one  who  proposes  to  associate  it  with  other  articles  to 
infringe  a  patent  when  such  purpose  is  known  to  the  seller.  But 
could  it  be  said  that  the  doctrine  of  contributory  infringement 
operates  to  extend  the  monopoly  of  the  patent  over  subjects  not 
within  it  because  one  subjects  himself  to  the  penalties  of  the  law 
when  he  sells  unpatented  things  for  an  infringing  use?  If  a  patentee 
says,  "I  may  suppress  my  patent  if  I  will;  I  may  make  and  have 
made  devices  under  my  patent,  but  I  will  neither  sell  nor  permit 
anyone  to  use  the  patented  things,"  he  is  within  his  right,  and  none 
can  complain.  But  if  he  says,  "I  will  sell  with  the  right  to  use 
only  with  other  things  proper  for  using  with  the  machines,  and 
I  will  sell  at  the  actual  cost  of  the  machines  to  me,  provided  you 
will  agree  to  use  only  such  articles  as  are  made  by  me  in  connection 
therewith,"  if  he  chooses  to  take  his  profit  in  this  way,  instead  of 
taking  it  by  a  higher  price  for  the  machines,  has  he  exceeded  his 
exclusive  right  to  make,  sell,  and  use  his  patented  machines?  The 
market  for  the  sale  of  such  articles  to  the  users  of  his  machine, 
which,  by  such  a  condition,  he  takes  to  himself,  was  a  market  which 
he  alone  created  by  the  making  and  selling  of  a  new  invention. 
Had  he  kept  his  invention  to  himself  no  ink  could  have  been  sold 
by  others  for  use  upon  machines  embodying  that  invention.  By 
selling  it  subject  to  the  restriction  he  took  nothing  from  others  and 
in  no  wise  restricted  their  legitimate  market. 


Neither  can  we  see  that  the  liability  of  the  defendants  for  aiding 
and  abetting  an  infringing  use  by  Miss  Skou  would  be  different 
whether  she  had  made  her  machine  in  open  defiance  of  the  rights 
of  the  patentee  or  had  bought  it  under  conditions  limiting  her 
right  of  use.  If  she  had  made  it,  she  would  have  been  liable  to  an 
action  for  infringement  for  making,  and  if  she  used  it  she  would 
become  liable  for  such  infringing  use.  But  if  the  defendants  knew 
of  the  patent  and  that  she  had  unlawfully  made  the  patented 
article,  and  then  sold  her  ink  or  other  supplies,  without  which  she 
could  not  operate  the  machine,  with  the  intent  and  purpose  that 
she  should  use  the  infringing  article  by  means  of  the  ink  supplied 
by  them,  they  would  assist  in  her  infringing  use. 


276  Industrial  Combinations  and  Trusts 

"Contributory  infringement,"  says  Judge  Townsend  in  Thomas 1- 
Houston  Co.  v.  Kelsey  Co.  (72  Fed.  Rep.,  1016),  "has  been  well 
defined  as  the  intentional  aiding  of  one  person  by  another  in  the 
unlawful  making,  or  selling,  or  using  of  the  patented  invention." 
To  the  same  effect  are  Wallace  v.  Holmes  (29  Fed.  Cases,  79); 
Risdon  v.  Trent  (92  Fed.  Rep.,  375);  Thomson-Houston  Co.  v. 
Ohio  Brass  Works  (80  Fed.  Rep.,  721);  American  Graphophone  Co. 
v.  Hawthorne  (92  Fed.  Rep.,  516). 

In  the  Risdon  case  a  member  of  the  firm  which  made  the  plans 
for  the  construction  of  certain  mining  machinery  to  be  made  in  the 
owner's  shop,  and  then  superintended  its  erection  at  the  mine,  was 
held  to  be  guilty  of  infringement,  though  he  neither  personally 
made  nor  used  the  machines  which  were  found  to  be  an  infringe- 
ment of  valid  patents.  In  American  Graphophone  Co.  v.  Haw- 
thorne one  who  sold  a  machine  with  knowledge  that  it  was  to  be 
used  to  produce  an  infringing  article  was  held  to  be  liable  as  an 
infringer. 

For  the  purpose  of  testing  the  consequence  of  a  ruling  which  will 
support  the  lawfulness  of  a  sale  of  a  patented  machine  for  use  only 
in  connection  with  supplies  necessary  for  its  operation  bought  from 
the  patentee,  many  fanciful  suggestions  of  conditions  which  might 
be  imposed  by  a  patentee  have  been  pressed  upon  us.  Thus  it  is 
said  that  a  patentee  of  a  coffee  pot  might  sell  on  condition  that  it 
be  used  only  with  coffee  bought  from  him,  or,  if  the  article  be  a 
circular  saw,  that  it  might  be  sold  on  condition  that  it  be  used 
only  in  sawing  logs  procured  from  him.  These  and  other  illustra- 
tions are  used  to  indicate  that  this  method  of  marketing  a  patented 
article  may  be  carried  to  such  an  extent  as  to  inconvenience  the 
public  and  involve  innocent  people  in  unwitting  infringements.  But 
these  illustrations  all  fail  of  their  purpose,  because  the  public  is 
always  free  to  take  or  refuse  the  patented  article  on  the  terms  im- 
posed. If  they  be  too  onerous  or  not  in  keeping  with  the  benefits, 
the  patented  article  will  not  find  a  market.  The  public,  by  per- 
mitting the  invention  to  go  unused,  loses  nothing  which  it  had 
before,  and  when  the  patent  expires  will  be  free  to  use  the  invention 
without  compensation  or  restriction.  This  was  pointed  out  in  the 
paper-bag  case,  where  the  inventor  would  neither  use  himself  nor 
allow  others  to  use,  and  yet  was  held  entitled  to  restrain  infringe- 
ment, because  he  had  the  exclusive  right  to  keep  all  others  from 
using  during  the  life  of  the  patent.  This  larger  right  embraces  the 
1  In  error;  should  be  "  Thomson." — Ed. 


The  Patent  Monopoly  277 

lesser  of  permitting  others  to  use  upon  such  terms  as  the  patentee 
chooses  to  prescribe.  It  must  not  be  forgotten  that  we  are  dealing 
with  a  constitutional  and  statutory  monopoly.  An  attack  upon 
the  rights  under  a  patent  because  it  secures  a  monopoly  to  make, 
to  sell,  and  to  use  is  an  attack  upon  the  whole  patent  system.  We 
are  not  at  liberty  to  say  that  the  Constitution  has  unwisely  provided 
for  granting  a  monopolistic  right  to  inventors  or  that  Congress  has 
unwisely  failed  to  impose  limitations  upon  the  inventor's  exclusive 
right  of  use.  And  if  it  be  that  the  ingenuity  of  patentees  in  devising 
ways  in  which  to  reap  the  benefit  of  their  discoveries  requires  to  be 
restrained,  Congress  alone  has  the  power  to  determine  what  restraints 
shall  be  imposed.  As  the  law  now  stands  it  contains  none,  and  the 
duty  which  rests  upon  this  and  upon  every  other  court  is  to  expound 
the  law  as  it  is  written.  Arguments  based  upon  suggestions  of  public 
policy  not  recognized  in  the  patent  laws  are  not  relevant.  The  field 
to  which  we  are  invited  by  such  arguments  is  legislative,  not  judicial.1 
The  decisions  of  this  court  as  we  have  construed  them  do  not  so 
limit  the  privilege  of  the  patentee,  and  we  could  not  so  restrict  a 
patent  grant  without  overruling  the  long  line  of  judicial  decisions 
from  circuit  courts  and  circuit  courts  of  appeal  heretofore  cited, 
thus  inflicting  disastrous  results  upon  individuals  who  have  made 
large  investments  in  reliance  upon  them. 

The  conclusion  we  reach  is  that  there  is  no  difference  in  principle 
between  a  sale  subject  to  specific  restrictions  as  to  the  time,  place, 
or  purpose  of  use  and  restrictions  requiring  a  use  only  with  other 
things  necessary  to  the  use  of  the  patented  article  purchased  from 
the  patentee.  If  the  violation  of  the  one  kind  is  an  infringement, 
the  other  is  also 


We  come  then  to  the  question  as  to  whether  "the  acts  of  the  de- 
fendants constitute  contributory  infringement  of  the  complainants' 
patent." 

The  facts  upon  which  our  answer  must  be  made  are  somewhat 
meager.  It  has  been  urged  that  we  should  make  a  negative  reply 
to  the  interrogatory  as  certified,  because  the  intent  to  have  the  ink 
sold  to  the  licensee  used  in  an  infringing  way  is  not  sufficiently  made 
out.  Undoubtedly  a  bare  supposition  that  by  a  sale  of  an  article 
which,  though  adapted  to  an  infringing  use,  is  also  adapted  to  other 
and  lawful  uses,  is  not  enough  to  make  the  seller  a  contributory 
1  Italics  are  the  editor's. — Ed. 


278  Industrial  Combinations  and  Trusts 

infringer.  Such  a  rule  would  block  the  wheels  of  commerce.  There 
must  be  an  intent  and  purpose  that  the  article  sold  will  be  so  used. 
Such  a  presumption  arises  when  the  article  so  sold  is  only  adapted 
to  an  infringing  use.  Rupp  v.  Elliott  (131  Fed.,  730).  It  may  also 
be  inferred  where  its  most  conspicuous  use  is  one  which  will  cooper- 
ate in  an  infringement  when  sale  to  such  user  is  invoked  by  adver- 
tisement. Kalem  Co.  v.  Harper  Brothers,  decided  at  this  term  and 
not  yet  reported. 

These  defendants  are,  in  the  facts  certified,  stated  to  have  made 
a  direct  sale  to  the  user  of  the  patented  article,  with  knowledge 
that  under  the  license  from  the  patentee  she  could  not  use  the  ink, 
sold  by  them  directly  to  her,  in  connection  with  the  licensed  ma- 
chine, without  infringement  of  the  monopoly  of  the  patent.  It  is 
not  open  to  them  to  say  that  it  might  be  used  in  a  noninfringing  way, 
for  the  certified  fact  is  that  they  made  the  sale  "with  the  expecta- 
tion that  it  would  be  used  in  connection  with  said  mimeograph." 
The  fair  interpretation  of  the  facts  stated  is  that  the  sale  was  with 
the  purpose  and  intent  that  it  would  be  so  used. 

So  understanding  the  import  of  the  question  in  connection  with 
the  facts  certified,  we  must  answer  the  question  certified  affirma- 
tively. 

Mr.  Justice  Day  did  not  hear  the  argument  and  took  no  part  in 
the  decision  of  this  case. 

Mr.  Chief  Justice  White,  with  whom  concurred  Mr.  Justice 
Hughes  and  Mr.  Justice  Lamar,  dissenting: 

My  reluctance  to  dissent  is  overcome  in  this  case:  First,  because 
the  ruling  now  made  has  a  much  wider  scope  than  the  mere  interest 
of  the  parties  to  this  record,  since,  in  my  opinion,  the  effect  of  that 
ruling  is  to  destroy,  in  a  very  large  measure,  the  judicial  authority 
of  the  States  by  unwarrantedly  extending  the  Federal  judicial 
power.  Second,  because  the  result  just  stated,  by  the  inevitable 
development  of  the  principle  announced,  may  not  be  confined  to 
sporadic  or  isolated  cases,  but  will  be  as  broad  as  society  itself, 
affecting  a  multitude  of  people  and  capable  of  operation  upon 
every  conceivable  subject  of  human  contract,  interest,  or  activity, 
however  intensely  local  and  exclusively  within  State  authority 
they  otherwise  might  be.  Third,  because  the  gravity  of  the  con- 
sequences which  would  ordinarily  arise  from  such  a  result  is  greatly 
aggravated  by  the  ruling  now  made,  since  that  ruling  not  only 
vastly  extends  the  Federal  judicial  power,  as  above  stated,  but  as 
to  all  the  innumerable  subjects  to  which  the  ruling  may  be  made  to 


The  Patent  Monopoly  279 

apply,  makes  it  the  duty  of  the  courts  of  the  United  States  to  test 
the  rights  and  obligations  of  the  parties,  not  by  the  general  law  of 
the  land,  in  accord  with  the  conformity  act,  but  by  the  provisions 
of  the  patent  law,  even  although  the  subjects  considered  may  not 
be  within  the  embrace  of  that  law,  thus  disregarding  the  State  law, 
overthrowing,  it  may  be,  a  settled  public  policy  of  the  State,  and 
injuriously  affecting  a  multitude  of  persons.  Lastly,  I  am  led  to 
express  the  reasons  which  constrain  me  to  dissent,  because  of  the 
hope  that  if  my  forebodings  as  to  the  evil  consequences  to  result 
from  the  application  of  the  construction  now  given  to  the  patent 
statute  be  well  founded,  the  statement  of  my  reasons  may  serve  a 
twofold  purpose:  First,  to  suggest  that  the  application  in  future 
cases  of  the  construction  now  given  be  confined  within  the  narrow- 
est limits,  and,  second,  to  serve  to  make  it  clear  that  if  evils  arise 
their  continuance  will  not  be  caused  by  the  interpretation  now  given 
to  the  statute,  but  will  result  from  the  inaction  of  the  legislative 
department  in  failing  to  amend  the  statute  so  as  to  avoid  such  evils.1 


I  can  not  bring  my  mind  to  assent  to  the  conclusion  referred  to, 
and  shall  state  in  the  light  of  reason  and  authority  why  I  can  not  do 
so.  As  I  have  said,  the  ink  was  not  covered  by  the  patent;  indeed, 
it  is  stated  in  argument  and  not  denied  that  a  prior  patent  which 
covered  the  ink  had  expired  before  the  sale  in  question.  It  there- 
fore results  that  a  claim  for  the  ink  could  not  have  been  lawfully 
embraced  in  the  patent,  and  if  it  had  been  by  inadvertence  allowed 
such  claim  would  not  have  been  enforceable.  This  curious  anomaly 
then  results,  that  that  which  was  not  embraced  by  the  patent, 
which  could  not  have  been  embraced  therein  and  which  if  mistak- 
enly allowed  and  included  in  an  express  claim  would  have  been 
inefficacious,  is  now,  by  the  effect  of  a  contract  held  to  be  embraced 
by  the  patent  and  covered  by  the  patent  law.  This  inevitably 
causes  the  contentions  now  upheld  to  come  to  this,  that  a  patentee 
in  selling  the  machine  covered  by  his  patent  has  power  by  contract 
to  extend  the  patent  so  as  to  cause  it  to  embrace  things  which  it 
does  not  include;  in  other  words,  to  exercise  legislative  power  of  a 
far-reaching  and  dangerous  character.  Looking  at  it  from  another 
point  of  view  and  testing  the  contention  by  a  consideration  of  the 
rights  protected  by  the  patent  law  and  the  rights  which  an  inventor 
who  obtains  a  patent  takes  under  that  law,  the  proposition  reduces 
1  Italics  are  the  editor's. 


280  Industrial  Combinations  and  Trusts 

itself  to  the  same  conclusion.  The  natural  right  of  anyone  to  make, 
vend,  and  use  his  invention,  which  but  for  the  patent  law  might  be 
invaded  by  others,  is  by  that  law  made  exclusive,  and  hence  the 
power  is  conferred  to  exclude  others  from  making,  using,  or  vend- 
ing the  patented  invention.  (Paper  Bag  case,  210  U.  S.,  424-425, 
and  cases  cited.) 

The  exclusive  right  of  use  of  the  invention  embodied  in  the  ma- 
chine which  the  patent  protected  was  a  right  to  use  it  anywhere  and 
everywhere  for  all  and  every  purpose  of  which  the  machine  as  em- 
braced by  the  patent  was  susceptible.  The  patent  was  solely  upon 
the  mechanism,  which,  when  operated,  was  capable  of  producing 
certain  results.  A  patent  for  this  mechanism  was  not  concerned  in 
any  way  with  the  materials  to  be  used  in  operating  the  machine, 
and  certainly  the  right  protected  by  the  patent  was  not  a  right  to 
use  the  mechanism  with  any  particular  ink  or  other  operative 
materials.  Of  course,  as  the  owner  of  the  machine  possessed  the 
ordinary  right  of  an  owner  of  property  to  use  such  materials  as  he 
pleased  in  operating  his  patented  machine  and  had  the  power  in 
selling  his  machine  to  impose  such  conditions,  in  the  nature  of 
covenants  not  contrary  to  public  policy  as  he  saw  fit,  I  shall  assume 
that  he  had  the  power  to  exact  that  the  purchaser  should  use  only 
a  particular  character  of  materials.  But  as  the  right  to  employ 
any  desired  operative  materials  in  using  the  patented  machine  was 
not  a  right  derived  from  or  protected  by  the  patent  law,  but  was  a 
mere  right  arising  from  the  ownership  of  property,  it  can  not  be 
said  that  the  restriction  concerning  the  use  of  the  materials  was  a 
restriction  upon  the  use  of  the  machine  protected  by  the  patent 
law.  When  I  say  it  can  not  be  said  I  mean  that  it  can  not  be  so 
done  in  reason,  since  the  inevitable  result  of  so  doing  would  be  to 
declare  that  the  patent  protected  a  use  which  it  did  not  embrace. 
And  this,  after  all,  serves  to  demonstrate  that  it  is  a  misconception 
to  qualify  the  restriction  as  one  on  the  use  of  the  machine,  when  in 
truth  both  in  form  and  substance  it  was  but  a  restriction  upon  the 
use  of  materials  capable  of  being  employed  in  operating  the  machine. 
In  other  words,  every  use  which  the  patent  protected  was  trans- 
ferred to  Miss  Skou,  and  the  very  existence  of  the  particular  re- 
striction under  consideration  presupposes  such  right  of  complete 
enjoyment,  and  because  of  its  possession  there  was  engrafted  a  con- 
tract restriction,  not  upon  the  use  of  the  machine,  but  upon  the 
materials.  And  these  considerations  are  equally  applicable  to  the 
exercise  of  the  exclusive  right  to  vend  protected  by  the  patent  un- 


The  Patent  Monopoly  281 

less  it  can  be  said  that  by  the  act  of  selling  a  patented  machine  and 
disposing  of  all  the  use  of  which  it  is  capable  a  patentee  is  endowed 
with  the  power  to  amplify  his  patent  by  causing  it  to  cover  in  the 
future  things  which  at  the  time  of  the  sale  it  did  not  embrace. 

But  the  result  of  this  analysis  serves  at  once  again  to  establish, 
from  another  point  of  view,  that  the  ruling  now  made  in  effect  is 
that  the  patentee  has  the  power,  by  contract,  to  extend  his  patent 
rights  so  as  to  bring  within  the  claims  of  his  patent  things  which 
are  not  embraced  therein,  thus  virtually  legislating  by  causing  the 
patent  laws  to  cover  subjects  to  which,  without  the  exercise  of  the 
right  of  contract,  they  could  not  reach,  the  result  being  not  only  to 
multiply  monopolies  at  the  will  of  an  interested  party,  but  also  to 
destroy  the  jurisdiction  of  the  State  courts  over  subjects  which 
from  the  beginning  have  been  within  their  authority. 

The  vast  extent  to  which  the  results  just  stated  may  be  carried 
will  be  at  once  apparent  by  considering  the  facts  of  this  case  and 
bearing  in  mind  that  this  is  not  the  suit  of  a  patentee  against  one 
with  whom  he  has  contracted  to  enforce  as  against  such  person  an 
act  done  in  violation  of  a  contract  as  an  infringement,  but  it  is 
against  a  third  person  who  happened  to  deal  in  an  ordinary  com- 
modity of  general  use  with  a  person  with  whom  the  patentee  had 
contracted.  And  this  statement  shows  that  the  effect  of  the  ruling 
is  to  make  the  virtual  legislative  authority  of  the  owner  of  a  pat- 
ented machine  extend  to  every  human  being  in  society,  without 
reference  to  their  privity  to  any  contract  existing  between  the  pat- 
entee and  the  one  to  whom  he  has  sold  the  patented  machine.  It  is 
worthy  of  observation  that  the  vast  power  which  the  ruling  confers 
upon  the  holders  of  patented  inventions  does  not  alone  cause  con- 
troversies which  otherwise  would  be  subject  to  the  State  jurisdic- 
tion to  become  matters  of  exclusive  Federal  cognizance,  but  subjects 
the  rights  of  the  parties  when  in  the  Federal  forum  to  the  patent 
law,  to  the  exclusion  of  the  State  law  which  otherwise  would  ap- 
ply, and  it  may  be  to  the  overthrow  of  the  settled  public  policy 
of  the  State  wherein  the  dealings  involved  take  place.  All  these 
results  are  in  a  measure  comprehensively  portrayed  by  the  decree 
of  the  circuit  court.  They  are,  moreover,  vividly  shown  by  a  ref- 
erence made  by  the  court  to  and  the  putting  aside  as  inapplicable 
of  a  previous  decision  of  this  court  (Miles  Medical  Co.  v.  Park  & 
Sons  Co.,  220  U.  S.,  373)  which  if  here  applied  would  cause  the 
alleged  license  to  be  held  void  as  against  public  policy.  As  the 
theory  upon  which  the  Miles  Medical  Co.  case  is  treated  as  inappli- 


282  Industrial  Combinations  and  Trusts 

cable  is  that  this  case  is  one  governed  by  the  patent  laws,  and  there- 
fore not  within  the  rule  of  public  policy  which  the  Miles  case  ap- 
plied, it  is  made  indubitably  clear  that  the  ruling  now  announced 
endows  the  patentee  with  a  right  by  contract  not  only  to  produce 
the  fundamental  change  as  to  jurisdiction  of  the  State  and  Federal 
courts  to  which  I  have  referred,  but  also  to  bring  about  the  over- 
throw of  the  public  policy  both  of  the  State  and  Nation,  which  I 
at  the  outset  indicated  was  a  consequence  of  the  ruling  now  made. 

I  do  not  think  it  necessary  to  stop  to  point  out  the  innumerable 
subjects  which  will  be  susceptible  of  being  removed  from  the  opera- 
tion of  State  judicial  power  and  the  fundamental  and  radical  char- 
acter of  the  change  which  must  come  as  a  result  of  the  principle 
decided.    But,  nevertheless,  let  me  give  a  few  illustrations: 

Take  a  patentee  selling  a  patented  engine.  He  will  now  have  the 
right  by  contract  to  bring  under  the  patent  laws  all  contracts  for  coal 
or  electrical  energy  used  to  afford  power  to  work  the  machine  or  even 
the  lubricants  employed  in  its  operation.  Take  a  patented  carpenter's 
plane.  The  power  now  exists  in  the  patentee  by  contract  to  validly 
confine  a  carpenter  purchasing  one  of  the  planes  to  the  use  of  lumber 
sawed  from  trees  grown  on  the  land  of  a  particular  person  or  sawed 
by  a  particular  mill.  Take  a  patented  cooking  utensil.  The  power  is 
now  recognized  in  the  patentee  to  bind  by  contract  one  who  buys  the 
utensil  to  use  in  connection  with  it  no  other  food  supply  but  that  sold 
or  made  by  the  patentee.  Take  the  invention  of  a  patented  window 
frame.  It  is  now  the  law  that  the  seller  of  the  frame  may  stipulate 
that  no  other  material  shall  be  used  in  a  house  in  which  the  window 
frames  are  placed  except  such  as  may  be  bought  from  the  patentee  and 
seller  of  the  frame.  Take  an  illustration  which  goes  home  to  everyone — 
a  patented  sewing  machine.  It  is  now  established  that  by  putting  on 
the  machine,  in  addition  to  the  notice  of  patent  required  by  law,  a  notice 
called  a  license  restriction,  the  right  is  acquired,  as  against  the  whole 
world,  to  control  the  purchase  by  users  of  the  machine  of  thread,  needles, 
and  oil  lubricants  or  other  materials  convenient  or  necessary  for  opera- 
tion of  the  machine.1  The  illustrations  might  be  multiplied  in- 
definitely. That  they  are  not  imaginary  is  now  a  matter  of  com- 
mon knowledge,  for,  as  the  result  of  a  case  decided  some  years  ago 
by  one  of  the  circuit  courts  of  appeal,  which  has  been  followed 
by  cases  in  other  circuit  courts  of  appeal,  to  which  reference  will 
hereafter  be  made,  what  prior  to  the  first  of  those  decisions  on  a 
sale  of  a  patented  article  was  designated  a  condition  of  sale,  gov- 
1  Italics  are  the  editor's. 


The  Patent  Monopoly  283 

erned  by  the  general  principles  of  law,  has  come  in  practice  to 
be  denominated  a  license  restriction,  thus,  by  the  change  of  form, 
under  the  doctrine  announced  in  the  cases  referred  to,  bringing 
the  matters  covered  by  the  restriction  within  the  exclusive  sway 
of  the  patent  law.  As  the  transformation  has  come  about  in  prac- 
tice since  the  decisions  in  question,  the  conclusion  is  that  it  is 
attributable  as  an  effect  caused  by  the  doctrine  of  those  cases. 
And,  as  I  have  previously  stated,  it  is  a  matter  of  common  knowl- 
edge that  the  change  has  been  frequently  resorted  to  for  the  pur- 
pose of  bringing  numerous  articles  of  common  use  within  the  monop- 
oly of  a  patent  when  otherwise  they  would  not  have  been  embraced 
therein,  thereby  tending  to  subject  the  whole  of  society  to  a  wide- 
spread and  irksome  monopolistic  control. 


I  pass  by  the  English  decisions  relied  upon  with  the  remark  that 
it  is  not  perceived  how  they  can  have  any  persuasive  influence  on 
the  subject  in  hand  in  view  of  the  distinction  between  State  and 
national  power  which  here  prevails  and  the  consequent  necessity, 
if  our  institutions  are  to  be  preserved,  of  forbidding  a  use  of  the 
patent  laws  which  serves  to  destroy  the  lawful  authority  of  the 
States  and  their  public  policy.  I  fail  also  to  see  the  application  of 
English  cases  in  view  of  the  possible  difference  between  the  public 
policy  of  Great  Britain  concerning  the  right,  irrespective  of  the 
patent  law,  to  make  contracts  with  the  monopolistic  restriction 
which  the  one  here  recognized  embodies  and  the  public  policy  of 
the  United  States  on  that  subject  as  established,  after  great  con- 
sideration, by  this  court  in  Miles  Medical  Co.  v.  Park  &  Sons  Co. 
(220  U.  S.,  373).  See  especially  on  this  subject  the  grounds  for 
dissent  in  that  case  expressed  by  Mr.  Justice  Holmes,  referring  to 
the  English  law,  on  page  413. 


But  even  if  I  were  to  put  aside  everything  I  have  said  and  were 
to  concede  for  the  sake  of  argument  that  the  power  existed  in  a 
patentee,  by  contract,  to  accomplish  the  results  which  it  is  now 
held  may  be  effected,  I  nevertheless  would  be  unable  to  give  my 
assent  to  the  ruling  now  made.  If  it  be  that  so  extraordinary  a 
power  of  contract  is  vested  in  a  patentee,  I  can  not  escape  the  con- 
clusion that  its  exercise,  like  every  other  power,  should  be  subject 


284  Industrial  Combinations  and  Trusts 

to  the  law  of  the  land.  To  conclude  otherwise  would  be  but  to  say 
that  there  was  a  vast  zone  of  contract  lying  between  rights  under  a 
patent  and  the  law  of  the  land,  where  lawlessness  prevailed  and 
wherein  contracts  could  be  made  whose  effect  and  operation  would 
not  be  confined  to  the  area  described,  but  would  be  operative  and 
effective  beyond  that  area,  so  as  to  dominate  and  limit  rights  of 
every  one  in  society,  the  law  of  the  land  to  the  contrary  notwith- 
standing. 


What  could  more  cogently  serve  to  point  to  the  reality  and  con- 
clusiveness of  these  suggestions  than  do  the  facts  of  this  case?  It  is 
admitted  that  the  use  of  the  ink  to  work  the  patented  machine  was 
not  embraced  in  the  patent,  and  yet  it  is  now  held  that  by  contract 
the  use  of  materials  not  acquired  from  a  designated  source  has  be- 
come an  infringement  of  the  patent,  and  exactly  the  same  law  is 
applied  as  though  the  patent  in  express  terms  covered  the  use  of 
ink  and  other  operative  materials.  It  is  not,  as  I  understand  it, 
denied;  and  if  it  were,  in  the  face  of  the  decision  in  the  Miles  Medi- 
cal Co.  case,  supra,  in  reason  it  can  not  be  denied  that  the  particular 
contract  which  operates  this  result  if  tested  by  the  general  law 
wTould  be  void  as  against  public  policy.  The  contract,  therefore, 
can  only  be  maintained  upon  the  assumption  that  the  patent  law  and 
the  issue  of  a  patent  is  the  generating  source  of  an  authority  to  con- 
tract to  procure  rights  under  the  patent  law  not  otherwise  within  that 
law,  and  which  could  not  be  enjoyed  under  the  general  law  of  the  land. l 
But  here,  as  upon  the  main  features  of  the  case,  it  seems  to  me  this 
court  has  spoken  so  authoritatively  as  to  leave  no  room  for  such 
a  view. 

1  Italics  are  the  editor's. 


CHAPTER  XI 

THE  ABSORPTION  OF  THE  TENNESSEE  COAL,  IRON  AND 
RAILROAD  COMPANY 

It  is  a  matter  of  much  regret  that  space  does  not  permit  the 
introduction  of  several  exhibits  on  the  absorption  of  the  Tennessee 
Coal,  Iron  and  Railroad  Company  by  the  United  States  Steel 
Corporation.  A  large  mass  of  testimony  upon  that  subject  is 
available  in  the  Stanley  Investigation.  Excerpts  from  the  testimony 
of  Messrs.  Schley  and  Ledyard,  Colonel  Roosevelt  and  others 
would  have  added  much  to  the  book.  It  is  hoped  however  that 
the  narrative  which  follows  will  be  sufficient  to  enable  the  reader 
to  understand  the  transaction  in  its  general  outlines.  It  should 
be  added  that  the  other  testimony  does  not  corroborate  Judge  Gary 
in  all  points. — Ed. 

Exhibit  i 

narrative  of  judge  elbert  h.  gary  * 

Mr.  Littleton.  I  wall  call  your  attention  to  a  statement  made  by 
Mr.  John  Moody,  and  ask  you  if  you  dissent  from  it  or  agree  with  it: 

The  acquisition  of  this  organization — 

That  is,  the  Tennessee  Coal  &  Iron  Co. — 

has  added  great  potential  value  to  the  steel  organization  and  has  increased 
the  tangible  equity  of  its  common-stock  issue  to  a  far  greater  extent  than  is 
commonly  realized.  The  Tennessee  Coal  &  Iron  properties  embrace,  besides 
important  manufacturing  plants,  nearly  450,000  acres  of  mineral  lands  in  the 
Birmingham  section  of  Alabama.  As  shown  in  the  report  of  the  Tennessee 
Co.  in  1904,  when  an  appraisal  was  made  by  outside  parties,  these  lands  con- 
tain approximately  400,000,000  tons  of  first-class  low-grade  ore  and  more  than 
1,200,000,000  tons  of  coal,  of  which  about  one-half  is  coking  coal.  This  esti- 
mate indicates  that  the  deposits  embraced  are  even  in  excess  of  those  of  the 
great  Lake  Superior  properties  controlled  by  the  corporation,  including  the 
Great  Northern  ore  bodies.  This  entire  property  was  acquired,  as  is  well 
known,  on  very  favorable  terms. 

That  I  do  not  ask  you  to  assent  to,  but  I  wish  to  ask  you  about 
that.  The  description  given  there  in  that  article  is  substantially 
correct? 

1  Hearings  before  the  Committee  on  Investigation  of  United  States  Steel 
Corporation,  62nd  Cong.,  2nd  Sess.,  1911-1912,  pp.  124-143. 

28s 


286  Industrial  Combinations  and  Trusts 

Mr.  Gary.  I  do  not  agree  with  that  at  all;  no. 

Mr.  Littleton.  How  much  ore  did  it  add  to  the  possessions  of 
the  United  States  Steel  Corporation? 

Mr.  Gary.  There  was  an  estimate,  at  the  time  we  purchased,  of 
700,000,000  tons  of  ore,  about  400,000  tons,  as  I  remember,  of  which 
was  usable,  on  top  of  the  other — usable  by  their  method.  However, 
as  you  know,  probably,  it  was  an  inferior  grade  of  ore  and  not  of 
very  great  value,  in  my  opinion,  for  reasons  which  I  will  give  if 
you  desire.  You  could  hardly  consider  that  in  connection  with  the 
Lake  Superior  ores,  so  called,  or  as  adding  to  the  Lake  Superior 
ores. 

Mr.  Littleton.  I  asked  you  the  question  so  as  to  make  it  clear. 

Mr.  Gary.  Yes. 

Mr.  Littleton.  What  do  you  consider  was  the  amount  of  ore  you 
obtained  by  reason  of  procuring  control  of  the  Tennessee  Coal  & 
Iron  Co.? 

Mr.  Gary.  I  believe  we  obtained  five  or  six  hundred  million  tons 
of  ore,  a  portion  of  which,  at  least,  was  at  present  usable  in  that 
locality,  provided  there  was  a  market  for  it — that  is,  a  market  for 
the  iron  or  the  steel  which  could  be  manufactured  at  that  point. 

Mr.  Littleton.  How  much  coal  did  you  acquire  by  the  acquisi- 
tion of  the  Tennessee  Coal  &  Iron  Co.? 

Mr.  Gary.  We  suppose  a  large  body;  perhaps  more  than 
1,000,000,000  tons,  and  perhaps  1,000,200,000,  as  stated  there. 

Mr.  Littleton.  Did  you  consider  that  a  valuable  acquisition? 

Mr.  Gary.  Why,  it  had  value,  of  course;  but  there  was  plenty 
of  coal  like  it  which  could  be  bought  at  a  very  low  price,  and  there 
is  a  good  deal  yet.  And  there  is  plenty  of  ore  property  like  that 
which  could  be  bought,  and  can  be  at  the  present  time,  I  think, 
by  the  acre,  at,  say  $50  to  $100  an  acre.  Some  of  you  will  know 
what  that  means. 

Mr.  Littleton.  Was  the  Tennessee  Coal  &  Iron  ore  a  good  grade 
for  the  making  of  ordinary  pig  iron? 

Mr.  Gary.  That  could  be  utilized  in  the  manufacture  of  fairly 
good  pig  iron,  at  a  certain  cost. 

Mr.  Littleton.  What  did  the  property  consist  of  in  the  way  of 
improvements  for  the  purpose  of  mining  and  making  steel ;  or,  to  be 
more  specific,  what  was  the  output  of  the  furnaces,  per  ton,  per 
annum? 

Mr.  Gary.  A  full  statement  of  the  properties  of  that  company,  at 
that  time,  is  found  on  pages  26  and  27  of  the  annual  report  of  1907. 


Absorption  of  the  Tennessee  Railroad  Company     287 

Mr.  Littleton.  I  am  not  going  to  follow  the  details  of  that  so 
closely  as  to  require  consultation.  All  that  I  am  going  to  do  is  to  ask 
you  the  topical  questions  and  then  go  to  another  point.  It  has 
been  stated  that  the  capacity  of  the  blast  furnaces  of  the  company 
in  1907  was  about  160,000  tons  per  annum — that  is,  I  speak  of  the 
Tennessee  Coal  &  Iron  Co.? 

Mr.  Gary.  That  is  probably  right. 

Mr.  Littleton.  And  that  of  the  developed  coal  and  ore  mines 
about  20,000  tons  per  day? 

Mr.  Gary.  That  may  be  right.  I  do  not  know.  That  is  probably 
right.  In  the  year  1907  there  was  produced  about  1,500,000  tons  of 
ore — that  amount  was  mined;  there  were  produced  about  244,000 
tons  of  limestone  and  dolomite;  and  coal,  exclusive  of  coking  coal, 
about  1,700,000  tons;  and  of  coke,  about  1,100,000  tons.  There 
were  602,000  tons  of  pig  iron,  about;  open-hearth  steel,  ingots,  and 
castings,  about  243,000  tons;  rails,  about  149,000  tons;  billets, 
plates,  and  bars,  about  38,000  tons. 

Mr.  Littleton.  This  article  which  I  called  your  attention  to, 
which  I  have  consulted,  continues  with  this  statement: 

If  we  compare  this  capacity  with  that  of  the  actual  production  of  all  the 
other  properties  owned  by  the  Steel  Corporation,  outside  of  the  Tennessee 
Coal  &  Iron  Co.,  for  the  year  1907,  we  will  get  the  following  results:  Blast- 
furnace products,  10,819,968  tons;  ore  and  coal  mined  and  limestone  quarried, 
39,576,161  tons.  In  other  words,  the  capacity  of  the  new  properties  acquired, 
according  to  the  figures  above,  is  about  15  per  cent  of  the  total  production 
of  mining  products  of  the  entire  corporation  for  last  year  and  about  8  per  cent 
of  the  blast-furnace  products. 

Mr.  Gary.  I  have  given  you  the  production,  and  I  am  prepared 
to  give  you  the  results  in  figures  of  operations  before  we  secured  the 
property,  and  since,  after  an  expenditure  of  $15,000,000  or  more 
by  us,  including  the  payment  of  $6,500,000  which  the  company 
owed  when  we  took  it  over.  These  values  hinted  at  are 
fictitious. 

Mr.  Littleton.  What  was  the  capitalization  of  the  Tennessee 
Coal  &  Iron  Co.  at  the  time  you  took  it  over? 

Mr.  Gary.  I  gave  that. 

Mr.  Littleton.  $32,000,000,  was  it  not? 

Mr.  Gary.  There  was  $29,950,000  of  common  stock  and  $124,000 
and  over  of  preferred  stock.  The  bonded  indebtedness  was  $14,419,- 
000,  and  purchase-money  notes,  $826,000.  It  owed  current  liabili- 
ties, floating  debt,  $4,168,102,  considerable  of  which  was  past  due. 


288  Industrial  Combinations  and  Trusts 

Mr.  Littleton.  Did  you  or  your  company  solicit  the  purchase 
of  the  Tennessee  Coal  &  Iron  Co.,  or  was  it  offered  to  you  by  those 
who  had  the  authority  to  sell  it? 

Mr.  Gary.  It  was  offered,  one  way  or  another;  offered  many 
times,  at  about  the  time  we  acquired  it.  It  was  offered  by  Lewis 
Cass  Ledyard,  who  was  the  attorney  for  Col.  Oliver  Payne,  and 
who  had  been  interviewed  by  Mr.  Schley,  of  Moore  &  Schley;  and 
I  would  like  to  suggest,  if  I  may,  that  I  think  Mr.  Lewis  Cass 
Ledyard  ought  to  be  subpoenaed  to  state  the  exact  facts  which  led 
up  to  his  coming  to  J.  P.  Morgan  to  beg  him  to  suggest  to  the 
United  States  Steel  Corporation  the  propriety  and  the  necessity 
for  the  purchase  of  those  properties. 

Mr.  Littleton.  You  understand  it  to  be  a  fact  that  he  will  be 
subpoenaed,  Judge  Gary,  if  he  can  shed  any  light  on  this  question. 

Mr.  Gary.  I  am  very  sure  his  testimony  will  settle  the  question 
whether  we  desired  to  purchase  the  property,  or  whether  the  owners 
desired  to  sell  the  property. 

Mr.  Littleton.  Your  understanding  is  that  Mr.  Ledyard  came 
to  Mr.  Morgan  as  the  initial  step  in  the  transaction? 

Mr.  Gary.  No  doubt  about  it;  and  I  would  be  very  glad  to  give 
you  the  history  of  it,  so  far  as  I  know  it,  if  you  desire. 

Mr.  Littleton.  I  wish  you  would. 

Mr.  Gary.  Very  well.  In  one  way  or  another  the  stock  of  the 
Tennessee  Coal  &  Iron  Co.  had  been  offered  to  the  United  States 
Steel  Corporation,  I  will  not  say  authoritatively  or  by  the  owners 
exactly,  but  by  people  who  assumed  to  be  acting  between,  or  acting 
for  the  Tennessee  people.  Our  people  had  been  opposed  to  the  pur- 
chase of  the  property  at  any  price  or  on  any  basis,  and  had  dis- 
tinctly said  so.  Finally,  I  think  sometime  in  the  early  part  of  1907 — 
not  intending  to  be  accurate  as  to  dates — Mr.  Morgan  sent  for  me 
and  said  that  Mr.  George  Kessler  who,  as  you  know,  was  a  wine 
merchant,  but  who  had  purchased  some  of  this  stock  outside  of  the 
Schley  syndicate,  as  I  will  call  it,  had  approached  him,  Mr.  Morgan, 
with  the  statement  that  the  stock  of  the  Tennessee  Coal  &  Iron  Co. 
could  be  purchased  at  about  130,  and  asked  me  my  opinion.  I 
told  Mr.  Morgan  I  did  not  think  that  it  was  worth  half  of  that;  I 
did  not  think  we  could  afford  to  take  it  at  any  such  price;  that  I 
would  like  to  bring  Mr.  Frick  over  to  the  bank  and  get  his  opinion. 
He  came  over  to  the  bank,  and  Mr.  Frick  expressed  about  the  same 
opinion.  The  matter  was  then  dropped.  I  believe  Mr.  Morgan 
told  me  that  afterwards  he  found  out  that  Mr.  Kessler  represented 


Absorption  of  the  Tennessee  Railroad  Company     289 

only  himself,  and  did  not  represent  the  other  people,  as  Mr.  Morgan 
had  supposed. 

Along  about  the  23d  day  of  October,  1907,  Mr.  Morgan  requested 
me  to  come  over  to  the  bank,  and  said  Mr.  Schley  was  very  much  in 
need  of  money,  or  securities  which  he  could  use  at  the  bank.  I 
think  I  saw  Mr.  Schley  at  the  bank  at  that  time;  if  not,  I  did  later; 
but  the  business  finally  resulted  in  my  accommodating  Mr.  Schley 
by  loaning  him  $1,200,000  par  value  of  our  second  bonds,  and 
taking  from  him  an  agreement  to  return  those  bonds;  and  I  re- 
ceived from  him,  as  security  for  the  fulfillment  of  his  agreement, 
$2,000,000,  par  value,  of  the  stock  of  the  Tennessee  Coal  &  Iron 
Co. 

The  agreement  provided,  as  I  remember,  that  if  the  $1,200,000 
par  value  of  bonds  were  not  returned  by  April  23,  1908,  the  owner- 
ship of  the  $2,000,000  par  value  of  the  stock  of  the  Tennessee 
Coal  &  Iron  Co.  should  be  and  remain  in  the  United  States  Steel 
Corporation.  That  was  done  as  an  accommodation  to  Mr.  Schley 
at  his  very  urgent  request  and  because  he  stated  it  was  absolutely 
necessary  to  protect  him  from  financial  trouble.  That,  you  see, 
would  be  taking  the  Tennessee  Coal  &  Iron  Co.  stock  as  security  on 
the  basis  of  60. 

Mr.  Littleton.  Pardon  me,  do  you  know  how  much  Mr.  Schley 
had  of  the  Tennessee  Coal  &  Iron  Co.  stock  at  that  time? 

Mr.  Gary.  No;  I  do  not.  I  did  not  know  anything  about  it  at 
that  time,  except  so  far  as  appeared  by  this  transaction.  I  have  here 
the  written  agreement  between  the  United  States  Steel  Corporation, 
signed  by  myself  as  chairman,  and  Moore  &  Schley  and  the  members 
of  the  firm  of  Moore  &  Schley,  and  under  the  circumstances  and  in 
view  of  the  fact  that  he  has  heretofore  appeared  before  a  com- 
mittee and  exposed  the  facts  in  regard  to  this  I  feel  justified  in 
giving  all  the  facts,  and  I  will  furnish  the  committee  a  copy  of  this 
agreement. 

Mr.  Littleton.  Yes. 

Mr.  Gary.  I  will  exhibit  it  now  to  the  committee,  and  I  would 
like  to  retain  this,  of  course,  but  will  be  glad  to  furnish  you  with  a 
copy. 

Mr.  Littleton.  We  will  be  very  glad  to  have  a  copy. 

Mr.  Gary.  The  next  thing  that  occurred  in  relation  to  this  pur- 
chase was  about  the  2d  day  of  November,  1907.  We  were  then  in 
the  midst  of  what  I  have  termed  a  financial  cyclone.  There  were 
runs  on  many  banks  throughout  the  city  of  New  York,  including 


290  Industrial  Combinations  and  Trusts 

the  Trust  Co.  of  America,  the  Lincoln  Trust  Co.,  and  very  many 
other  banks.  The  panic  had  extended  all  over  the  country,  more 
or  less.  Banks  in  Chicago  had  drawn  their  money  from  the  New 
York  banks  so  far  as  they  could,  and  banks  in  other  cities  had  col- 
lected their  moneys.  It  was  impossible  for  depositors  to  get  out 
of  the  banks  throughout  the  country  the  money  they  had  in  the 
banks.  It  was  impossible  for  business  men  to  borrow  money. 
Loans  were  being  called  in  New  York,  Chicago,  St.  Louis,  and  va- 
rious other  cities.  As  an  illustration,  a  president,  or  vice  president, 
of  one  of  the  trust  companies  in  New  York  called  me  on  the  phone 
to  say  that  unless  the  bank  could  secure  $1,000,000  in  credits  that 
day  it  would  have  to  close  its  doors,  and  asked  me  to  help  if  I  could. 
I  applied  to  J.  P.  Morgan  &  Co.,  who  had  received  pledges  from 
various  bankers  there  to  furnish  certain  amounts  of  moneys  or 
credits,  for  assistance,  and  they  stated  that  they  had  so  many 
applications  and  had  so  much  business  of  this  kind  on  hand  that 
they  could  not  devote  any  time  or  attention  to  it,  and  asked  me  to 
find  out  if  this  Trust  Co.  was  entitled  to  any  relief,  and  I  asked  my 
own  people,  comptroller  and  assistant  treasurer,  to  go  to  that  bank 
and  make  an  examination  of  it.  I  think  they  spent  the  whole 
night  doing  so.  The  next  morning  I  received  their  report  and  in 
turn  reported  to  J.  P.  Morgan  &  Co.  that  the  bank  had  securities 
enough  to  entitle  it  to  relief,  and  $1,000,000  was  furnished,  and 
afterwards,  I  think,  a  good  deal  more.  The  bankers  of  our  city 
were  in  session  almost  night  and  day.  I  was  at  Mr.  Morgan's 
library  several  nights  nearly  all  night.  Many  of  the  leading  bankers 
of  our  city  were  there  nearly  all  night.  There  is  no  doubt  that  there 
was  every  indication  that  we  were  in  the  throes  of  a  panic  which 
might  lead  to  the  most  disastrous  results,  including  the  suspension 
of  a  large  number  of  banks,  and  the  failure  of  a  great  many  different 
people.  To  one  who  could  see  this,  who  could  talk  with  the  people 
and  talk  not  only  with  the  bankers  themselves  but  the  depositors 
and  people  generally,  there  could  be  no  possible  doubt  that  the 
country  was  in  very  grave  danger  of  one  of  the  worst  financial 
panics  that  has  ever  been  witnessed  in  this  country.  I  have  not 
undertaken  to  describe  it,  or  do  any  more  than  refer  to  it.  But  at 
this  time,  I  say,  Mr.  Morgan  telephoned  a  request  to  me  to  come 
to  his  library,  and  I  went.  I  found  Mr.  Lewis  Cass  Ledyard,  and, 
I  think,  Mr.  Schley  was  with  him;  he  was  on  several  occasions, 
although  I  did  not  talk  with  Mr.  Schley  at  the  first  interview. 
Mr.  Ledyard  was  the  counsel  of  Mr.  Payne. 


Absorption  of  the  Tennessee  Railroad  Company     291 

Mr.  Lindabury.  Oliver? 

Mr.  Gary.  Oliver  Payne.  He  was  one  of  the  gentlemen  named  in 
what  has  been  called  the  "syndicate, "  which  had  purchased  a  con- 
trolling interest  in  the  Tennessee  Coal  &  Iron  Co.  That  syndicate 
was  made  up  of  a  number  of  very  rich  people. 

Mr.  Littleton.  Right  on  that  head,  and  before  proceeding 
further,  is  it  or  is  it  not  a  fact  that  Moore  &  Schley  held  the  stock 
of  the  Tennessee  Coal  &  Iron  Co.  for  and  on  behalf  of  a  syndicate 
of  gentlemen? 

Mr.  Gary.  A  majority  of  the  stock. 

Mr.  Littleton.  A  majority  of  it;  on  behalf  of  a  syndicate  of 
gentlemen  comprising  O.  H.  Payne,  who  had  10,300  shares;  L.  C. 
Hanna,  who  had  10,300  shares;  J.  P.  Duke,  who  had  10,300  shares; 
E.  J.  Berwind,  who  had  10,300  shares;  J.  W.  Gates,  who  had  10,300 
shares;  A.  N.  Brady,  who  had  the  same  amount;  G.  A.  Kessler,  who 
had  the  same  amount;  Oakleigh  Thome,  who  had  the  same  amount; 
E.  W.  Oglebay,  who  had  5,150  shares;  H.  S.  Black,  who  had  5,150 
shares;  F.  D.  Stout,  who  had  5,150  shares;  J.  W.  Simpson,  who  had 
5,150  shares;  G.  W.  French,  who  had  2,500  shares;  S.  G.  Cooper, 
who  had  1,500  shares;  and  J.  A.  Topping,  who  had  1,000  shares? 

Mr.  Gary.  I  think  that  is  correct,  except  I  do  not  think  Kessler 
was  in  the  original  syndicate.  I  think  he  bought  outside,  and 
Schley  finally  took  his  stock  with  the  rest  and  made  some  advances 
on  it. 

Mr.  Littleton.  With  that  qualification,  then,  the  situation  at 
that  juncture  was  that  Moore  &  Schley  held,  for  and  on  behalf  of 
these  gentlemen  who  comprised  the  syndicate,  118,300  shares  of  the 
Tennessee  Coal  &  Iron  Co;  that  is  your  understanding? 

Mr.   Gary.  Yes. 

Mr.  Littleton.  Now  you  may  go  ahead. 

Mr.  Gary.  Mr.  Ledyard  stated  that  Moore  &  Schley  were  in 
very  great  financial  distress.  I  think  he  stated  it  perhaps  more 
strongly  than  Mr.  Schley  stated  it  when  he  was  before  the  Judiciary 
Committee  of  the  Senate,  although  I  read  that  statement  to-day, 
and  I  noticed  that  Mr.  Schley  testified  that  he  was  in  great  finan- 
cial distress  at  that  time,  and  did  not  know  what  would  become  of 
him  unless  he  secured  help  by  the  sale  of  this  stock.  I  think  Mr. 
Ledyard  stated  that  Moore  &  Schley  were  largely  indebted  to 
Mr.  Payne,  and  had  a  great  many  of  his  securities;  that  Moore  & 
Schley  had  deposited  with  their  securities  on  an  indebtedness  aggre- 
gating more  than  $30,000,000  a  large  amount  of  the  Tennessee  Coal 


292  Endustrial  Combinations  and  Trusts 

&  Iron  stock  as  collateral  security  in  a  very  great  many  banks  in 
New  York;  that  these  banks  had  called  these  loans,  or  insisted 
upon  Moore  &  Schley  taking  up  the  Tennessee  Coal  &  Iron  stock, 
for  the  reason  that  it  was  not  salable.  It  had  been  a  stock  that  over 
a  period  of  years  had  been  put  up  from  a  very  low  figure  to  a  very 
high  figure,  being  in  the  control  of  a  syndicate  which,  I  will  not  say 
manipulated  it — I  had  nothing  to  do  with  it — but  it  influenced  the 
greatest  fluctuations  in  it.    That  is  very  easily  ascertainable. 

Mr.  Bartlett.  They  had  this  stock  up  in  various  banks,  you 
say,  but  it  was  rather  a  fact,  was  it  not,  that  it  was  up  in  the  trust 
company  of  which  Mr.  Oakleigh  Thorne  was  president? 

Mr.  Gary.  He  had  about  four  hundred-odd  thousand  of  them  up 
at  that  bank,  as  I  understand.  I  understood  from  Mr.  Ledyard 
that  Moore  &  Schley  had  loaned  to  their  customers  who  had  bought 
this  stock  and  put  it  in,  sums  of  money,  and  then  they,  Moore  & 
Schley,  in  turn  had  pledged  this  stock  with  these  banks  as  collateral 
security,  in  a  great  many  different  banks,  aggregating,  in  all,  about 
$6,000,000.  That  was  the  statement  as  I  understood  it,  as  I  re- 
member it. 

Mr.  Ledyard  said  that,  in  his  opinion,  there  was  no  possible 
way  of  preventing  the  failure  of  Moore  &  Schley  unless  we  pur- 
chased this  stock,  and  he  believed  if  Moore  &  Schley  failed  it  meant 
the  failure  of  a  great  many  banks.  Mr.  Morgan  said  to  me,  "I 
do  not  know  whether  the  United  States  Steel  Corporation  can 
afford  to  buy  this  stock  or  not;  I  will  express  no  opinion  on  that 
subject.  But  I  will  say  that,  in  my  opinion,  if  it  does  not  buy  the 
stock,  or  unless  it  or  some  one  else  furnishes  relief  at  this  partic- 
ular time,  there  is  not  any  man  on  earth  can  say  what  the  result 
will  be  in  the  financial  circles  of  this  country.  In  my  opinion,  the 
circumstances  make  the  conditions  very  critical,  and  if  you  can 
see  your  way  clear  to  buy  this  stock,  there  is  no  doubt  it  will  help 
the  situation.  Now,  I  turn  Mr.  Ledyard  over  to  you  and  you  can 
take  up  and  consider  this  question  and  see  what,  if  anything,  you 
can  do."  I  said  to  Mr  Morgan,  "In  the  first  place,  I  would  not 
think  of  considering  the  purchase  of  this  stock  without  going  to 
Washington  first  and  taking  the  matter  up  with  the  President  or 
the  Department  of  Justice,  or  both."  He  said,  "Why?  Have 
they  any  right  to  say  whether  you  buy  or  not?"  I  said,  "No;  they 
have  not.  But  here  is  a  financial  crisis,  and  from  your  standpoint 
the  object  of  buying  this  stock  would  be  to  allay  this  storm,  to 
assist  in  overcoming  this  panic,  and  if  the  Department  of  Justice 


Absorption  of  the  Tennessee  Railroad  Company     293 

or  the  President  should  find  out  we  had  purchased,  or  were  about  to 
purchase  it,  and  should  enjoin  us  from  purchasing  on  the  ground 
that  it  would  add  to  our  holdings  and  thereby  raise  the  question  of 
creating  or  adding  to  a  monopoly,  you  can  see  at  once  that  what  we 
had  done  would  be  to  make  the  financial  conditions  very  much 
worse  than  they  are  now;  and  therefore,  it  seems  to  me,  we  ought 
to  know  how  the  President  and  the  Department  of  Justice  would 
feel  about  the  question."  He  said,  "Well,  I  think  that  is  very 
forcible,  and  I  see  no  objection  to  your  going  over  there  if  you  feel 
like  it."  I  said,  "I  certainly  would  not  be  in  favor  of  considering 
this  without  going  over  there." 

I  then  telephoned  Mr.  Frick,  a  member  of  our  finance  committee. 
I  think  Mr.  Ream  and  some  others  were  out  of  the  city  that  day, 
although  I  am  very  sure  Mr.  Ream  and  most,  if  not  all,  of  the 
members  of  the  committee  attended  subsequent  days  when  we  held 
various  meetings  to  consider  these  questions.  I  telephoned  Mr. 
Frick  and  asked  him  to  come  to  the  library,  which  he  did  imme- 
diately. It  seems  to  me  it  was  early  in  the  morning,  and,  as  I  re- 
member, the  report  from  his  house  was  that  he  was  out  riding.  But 
I  left  word  for  him  to  come  to  the  library  as  soon  as  he  returned, 
and  he  did  so  within  a  comparatively  short  time.  He  came  to  the 
library,  and  I  stated  to  him  briefly  the  situation  and  asked  him  if 
we  should  consider  this  question,  if  he  would  go  with  me  to  Wash- 
ington, and  he  said  the  first  question  to  consider  was  whether  we 
would  consider  the  purchase  of  this  property.  He  had  spoken 
against  this  a  good  many  times,  and  he  was  opposed  to  it.  He  did 
not  think  he  wanted  to  purchase  it.  He  made  the  statement  that 
he  did  not  think  it  was  worth  more  than  what  I  said  I  thought  it 
was  worth.  I  had  said  to  Mr.  Ledyard  that,  in  my  opinion,  the 
stock  was  not  worth  over  65 ;  and  I  believe  Mr.  Ledyard  will  corrob- 
orate that.  Mr.  Frick  expressed  about  the  same  opinion.  He 
was  very  much  opposed  to  it,  and  not  until  after  I  had  gone  over 
the  subject  with  him  carefully,  and  he  had  approached  Mr.  Morgan 
and  Mr.  Morgan  had  told  him — he  and  I  had  gone  to  Mr.  Morgan's 
room — how  he  felt  about  the  panic,  did  he  give  any  encouragement 
whatever  in  regard  to  his  opinion  and  his  influence.  Finally,  how- 
ever, he  said  he  would  like  to  think  it  over.  In  the  meantime,  I 
think,  I  had  telephoned  the  secretary  of  the  company  to  come  to 
the  library,  and  I  asked  him  to  telephone  the  members  of  the  finance 
committee  and  secure  a  meeting  at  the  library  of  the  finance  com- 
mittee as  soon  as  possible,  and  they  came  there  very  soon.    This 


294  Industrial  Combinations  and  Trusts 

whole  subject  matter  was  gone  over  very  carefully  by  me,  and  I 
think  Mr.  Frick  offered  the  resolution — I  would  like  to  tell  you 
what  resolution  was  passed  at  that  first  meeting.  Remember,  it 
had  been  represented  that  Mr.  Schley  had  on  deposit  as  collateral 
security  toward  the  payment  of  his  loans  only  about  six  millions 
of  the  stock  of  the  Tennessee  Coal  &  Iron  Co.  I  think  he  said 
then  five  or  six  millions.  I  thought  the  resolution  on  its  face  stated 
what  we  decided  upon,  but  it  does  not;  it  provides  that  on  Novem- 
ber 3  the  whole  subject  matter  be  reported  to  the  chairman,  with 
power. 

But  it  was  understood  that  we  would  offer  to  loan  Mr.  Schley 
either  five  or  six  million  dollars  in  cash,  taking  the  Tennessee  Coal 
&  Iron  Co.  stock  as  collateral  security  for  the  repayment  of  that 
loan;  and  if  that  failed  to  satisfy  his  wants,  that,  then,  we  would 
buy  the  stock  on  the  basis  of  paying  90  for  it  in  bonds  of  the  United 
States  Steel  Corporation.  I  went  back  to  Mr.  Ledyard  and  made  a 
proposition  to  make  this  loan  to  Schley.  He  talked  with  Schley, 
and  made  answer  that  that  would  not  do  at  all ;  they  could  not  get 
along  with  that;  that  Mr.  Payne  himself  had  offered  to  loan  Mr. 
Schley,  I  think,  a  million  dollars;  someone  else  had  offered  to  loan 
a  million  dollars;  and  someone  else,  or  others,  a  million  dollars. 
So  that,  as  I  remember,  there  were  about  $3,000,000  additional, 
which  would  provide  in  cash  to  Moore  &  Schley  about  eight  or  nine 
million  dollars.  But  that  Schley  said  that  would  not  do  at  all,  and 
he  could  not  possibly  get  through.  Mr.  Frick  himself,  then,  as  I 
remember,  had  a  conversation  with  Schley  and  tried  to  urge  him  to 
accept  this  loan,  saying  we  did  not  want  the  stock  and  did  not  be- 
lieve in  its  represented  value;  did  not  believe  it  was  worth  over  60 
or  65  at  the  outside.  Mr.  Schley  told  Mr.  Frick,  as  I  remember, 
that  he  could  not  get  along  with  that  loan;  that  he  must  sell  this 
stock;  that  there  were  various  reasons  why  that  wras  the  only  way 
he  could  possibly  keep  the  firm  from  bankruptcy.  Mr.  Schley  was 
represented  by  an  attorney,  Mr.  Thatcher,  of  Simpson,  Barnum 
&  Thatcher,  who  was  his  counsel,  Mr.  Ledyard  representing  Mr. 
Payne,  but  trying  to  help  Mr.  Schley  because  Mr.  Schley  was  in- 
indebted  to  Mr.  Payne;  and,  if  I  am  not  mistaken — I  would  not 
like  to  do  anybody  an  injustice — if  Mr.  Thatcher  should  be  sub- 
poenaed and  would  have  the  right,  from  a  professional  standpoint, 
to  state  it — I  am  not  sure  about  that — I  believe  he  would  say 
that  an  assignment  had  been  prepared  for  either  Moore  &  Schley 
or  Mr.  Schley. 


Absorption  of  the  Tennessee  Railroad  Company     295 

Mr.  Lindabury.  An  assignment  for  the  benefit  of  creditors? 

Mr.  Gary.  For  the  benefit  of  creditors. 

Mr.  Littleton.  That  is,  Mr.  John  Thatcher? 

Mr.  Gary.     Mr.  Tom  Thatcher. 

Mr.  Littleton.  Do  you  think  Mr.  Schley  would  permit  Mr. 
Thatcher  to  tell  that? 

Mr.  Gary.  That  I  do  not  know. 

Mr.  Littleton.  Of  course  the  privilege  lies  with  Mr.  Schley. 

Mr.  Gary.  I  understand  Mr.  Schley  has  said  since — I  do  not 
know,  but  he  testified — that  he  could  have  got  through  this  panic 
all  right.  Anybody  who  say *  him  at  that  time  and  heard  him  talk 
would  not  think  he  believed  he  could  get  through  at  that  time. 

Mr.  Lindabury.  I  want  to  say  that  Mr.  Schley  is  a  neighbor  of 
mine  in  the  country,  and  he  is  a  pretty  sick  man  just  now.  I  do  not 
believe  he  ought  to  be  approached  from  what  I  hear. 

Mr.  Littleton.  We  have  his  testimony  on  the  subject  in  another 
hearing. 

Mr.  Gary.  Thereupon  I  began  to  talk  to  Mr.  Ledyard  about  the 
purchase  of  this  stock  on  the  basis  of  90,  and,  as  I  remember,  he  and 
I  finally  agreed,  subject  to  the  objection  which  might  possibly  be 
made  in  Washington,  in  the  way  and  for  the  reasons  I  have  hereto- 
fore suggested.  As  I  remember,  Mr.  Ledyard  or  Mr.  Schley,  rep- 
resented by  Mr.  Thatcher,  but  communicating  through  Mr.  Led- 
yard, agreed  to  take  90  for  the  stock  and  take  his  pay  in  bonds. 

Mr.  Littleton.  At  that  point  did  you  or  Mr.  Ledyard  or  Mr. 
Thatcher  or  any  of  you  believe  that  the  President  or  Attorney  General 
had  any  right  to  indorse  this  transaction? 

Mr.  Gary.  /  was  clearly  of  the  opinion  that  he  did  not,2  and  later 
I  will  be  very  glad  to  tell  you  how  that  question  came  up  and  what 
took  place,  because  I  feel  certain  now  that  every  one  connected  in 
any  way  will  agree  that  the  exact  facts  and  all  the  facts  should  be 
made  known,  and  I  do  not  know  that  there  has  ever  been  any  other 
opinion  held  by  anyone. 

I  have  stated  that  we  offered,  under  the  conditions  and  subject  to 
the  conditions  mentioned,  to  pay  for  this  stock  in  the  bonds  of  the 
United  States  Steel  Corporation.  They  were  then  quoted  at  about 
84,  which,  by  comparison  with  other  stocks  in  the  market,  was 
pretty  high,  notwithstanding  it  was  a  very  low  price  for  those  bonds, 
which  had  sold,  and  should  have  sold,  and  did  soon  after  sell,  for 
better  than  par.    But  they  were  considered  the  best  kind  of  security, 

1  Thus  in  original — Ed.  2  Italics  are  the  editor's. 


296  Industrial  Combinations  and  Trusts 

and  they  were  more  salable,  in  my  opinion,  in  large  amounts  than 
anything  else  on  the  market,  any  other  kind  of  bonds  or  stocks, 
strange  as  it  may  seem.  There  was  a  great  market  for  those  bonds, 
and  after  this  trade  was  made  millions  and  millions  of  them  sold, 
commencing  at  about  84  and  not  going  down  below  about  78  or  79,  as 
I  remember.  The  United  States  Steel  Corporation  interests  had, 
in  different  banks  scattered  throughout  the  country,  about  $75,000,- 
000,  and  we  would  have  been  pleased  to  pay  for  this  stock  in  cash 
rather  than  pay  for  it  in  our  bonds  at  84,  except  for  the  fact  that 
we  could  not  do  that  without  disturbing  the  financial  conditions 
of  the  country,  disturbing  the  financial  conditions  of  these  banks, 
respectively,  where  our  money  was  deposited.  I  was  receiving 
requests  from  Pittsburg  banks  to  withdraw  our  money  in  other 
localities  and  put  more  money  in  the  banks  of  Pittsburg;  also  the 
same  request  from  Chicago,  the  same  request  from  other  cities, 
and  requests  from  New  York  banks  to  bring  more  money  in  from 
other  cities  to  New  York,  as  that  was  the  seat  of  the  greatest  trouble, 
the  seat  of  the  whole  trouble,  I  was  afraid  to  disturb  these  banking 
conditions  and  relations  by  the  withdrawal  of  money. 

Mr.  Littleton.  How  much  would  it  have  withdrawn,  about? 

Mr.  Gary.  It  would  have  withdrawn  twenty-five  or  more  million 
dollars.  We  could  not  have  withdrawn  from  any  bank  anywhere 
at  that  time  $5,000,000  without  creating  a  very  great  disturbance, 
the  final  result  of  which  no  man  at  that  time  could  measure  or 
possibly  form  any  adequate  notion  of.  If  I  had  been  disposed  to 
take  advantage  of  the  financial  conditions  to  make  money,  with 
this  large  deposit  in  the  different  banks,  with  these  great  resources, 
I  could  have  bought  securities — that  is,  bonds  of  all  sorts  and  de- 
scriptions in  the  market,  which  had  gone  down  to  a  comparatively 
low  price.  There  was  every  opportunity  for  anyone  who  had 
cash  resources  to  make  money.  But  certainly  there  was  no  such 
disposition  on  the  part  of  the  United  States  Steel  Corporation,  or 
anyone  connected  with  it,  and  therefore  we  proposed  to  pay  for 
the  Tennessee  Coal  &  Iron  stock  in  the  bonds  of  the  United  States 
Steel  Corporation,  wrhich  were  in  our  treasury,  and  which  were  as 
good  as  cash — which  could  be  sold  in  the  market  and  which  would 
be  received  by  any  of  the  banks  as  collateral  security  in  the  place 
of  the  Tennessee  Coal  &  Iron  stock  or  any  other  stock. 

I  say  that  Mr.  Ledyard  and  I  agreed  upon  the  price  of  90.  He 
came  back  to  me,  it  seems  to  me,  the  next  day — some  time  subse- 
quently— and  said  he  was  told  by  Mr.  Schley  and  his  counsel  that 


Absorption  of  the  Tennessee  Railroad  Company     297 

the  price  of  90  would  not  possibly  let  Messrs.  Moore  &  Schley,  or 
Mr.  Schley  out;  they  could  not  get  along  with  that.  I  notice,  in 
reading  the  testimony  of  Mr.  Gates,  that  he  says  he  got  home  and 
he  made  them  raise  the  purchase  price  of  securities.  But  the  whole 
transaction  was  closed  before  Mr.  Gates's  return  from  Europe — 
before  he  arrived  in  New  York,  and  if  he  made  that  statement  he 
must  have  made  it  by  Marconi,  and  certainly  it  was  not  communi- 
cated to  us.  The  reason  given  to  us,  and  the  only  reason,  for  pro- 
posing to  increase  the  purchase  price  was  that  the  stock  at  90 
was  not  sufficient  to  allow  the  firm  of  Moore  &  Schley  to  pull 
through. 

I  went  back  to  our  finance  committee  and  represented  those 
facts,  and  we  had  another  meeting  on  November  4  and  another 
resolution  was  passed,  again  referring  the  whole  subject  matter 
to  the  chairman  with  power;  and  I  returned  to  Mr.  Ledyard  and 
agreed  to  raise  the  price  from  90  to  100  in  order  to  allow  Moore 
&  Schley  to  pull  through.  My  bargaining  was  all  with  Mr.  Ledyard ; 
the  negotiations  were  entirely  between  Mr.  Ledyard  and  me,  as 
I  remember.  Mr.  Morgan  certainly  did  not  participate  in  any 
respect  nor  attempt  to  influence  anybody  to  buy  or  sell.  I  do  not 
hold  any  brief  for  Mr.  Morgan,  but  I  mention  that  in  connection 
with  some  of  the  published  and  sensational  statements  which  have 
undoubtedly  been  based  on  misinformation. 

Mr.  Gardner.  I  would  just  like  to  understand.  Your  first 
agreement  was  to  buy  the  stock  at  90  per  cent  of  its  face  value — 
the  securities? 

Mr.  Gary.  Yes;  and  pay  for  it  in  bonds  at  84. 

Mr.  Gardner.  And  pay  for  it  in  bonds  at  84 ;  that  is  to  say,  you 
paid  $72  on  the  hundred? 

Mr.  Gary.  I  have  not  made  the  figures;  but  afterwards  I  agreed 
to  pay  par  for  the  Tennessee  stock  in  bonds  at  84.  That,  in  other 
words,  would  be  paying  about  119  for  the  Tennessee  stock,  on  the 
assumption  that  the  bonds  were  worth  par. 

Mr.  Gardner.  In  other  words,  you  paid  out  $840  for  $900  worth 
of  their  securities,  or  did  you  pay  $100? 

Mr.  Gary,  $840  for  a  thousand,  par  value,  of  their  securities  was 
the  final  trade. 

Mr.  Gardner.  That  is  what  I  want  to  get  at. 

Mr.  Gary.  No;  it  is  the  other  way.    I  was  mistaken. 

Mr.  Gardner.  What  I  want  to  get  at  is  this:  Were  you  going  to 
pay  them  $100  for  $100  worth  of  their  securities,  only  you  happened 


298  Industrial  Combinations  and  Trusts 

to  settle,  for  convenience,  in  bonds  at  84,  or  were  you  going  to  pay 
$84  for  $100  worth  of  securities? 

Mr.  Gary.  Your  first  statement  is  right. 

Mr.  Gardner.  Then  let  me  ask  you,  just  to  clear  my  own  mind 
on  the  subject — because  I  have  only  gone  on  the  committee  to-day — 
you  said  that  Col.  Payne  offered  to  lend  a  million  dollars  originally? 

Mr.  Gary.  I  was  so  informed.  You  get  all  those  facts  from  Com- 
modore Ledyard. 

Mr.  Gardner.  I  want  to  follow  you;  that  did  not  show,  ap- 
parently, as  a  drop  in  the  bucket;  that  that  was  followed  by  a 
proposition  from  you  to  lend  $6,000,000,  or  thereabouts? 

Mr.  Gary.  They  all  came  in  together.  Commodore  Ledyard 
said  Mr.  Payne  would  provide  a  million  dollars,  and  other  parties, 
I  remember,  about  two  millions  more,  and  then  we  offered  to  add 
to  that  a  loan  of  five  or  six  million  dollars. 

Mr.  Gardner.  In  addition  to  the  three? 

Mr.  Gary.  Yes,  sir. 

Mr.  Gardner.  That  brings  it  up  to  nine  millions? 

Mr.  Gary.  Eight  or  nine  millions. 

Mr.  Gardner.  But  that  would  not  let  Messrs.  Moore  &  Schley 
out  of  their  difficulty.  Then,  the  next  proposition,  as  I  under- 
stand, was  90  per  cent  of  the  face  value  of  their  securities;  that  was 
$25,000,000,  or  thereabouts? 

Mr.  Gary.  I  think  so. 

Mr.  Gardner.  And  that  would  not  let  Moore  &  Schley  out  of 
their  difficulties? 

Mr.  Gary.  That  is  right. 

Mr.  Gardner.  Finally  you  paid  over  $30,000,000,  and  that  did 
not  let  them  out.  Now,  what  I  want  to  get  at  is,  What  were  Moore 
&  Schley's  obligations  that  required  such  an  enormous  difference 
as  between  the  original  proposition  of  Col.  Payne  and  what  finally 
was  furnished? 

Mr.  Gary.  These  obligations  which  were  paid  for  by  the  United 
States  Steel  Corporation  were  not  all  the  obligations  of  Moore  & 
Schley.  They  did  have  obligations  in  the  bank,  as  I  understood, 
of  between  thirty  and  forty  million  dollars. 

Mr.  Gardner.  Thirty  or  forty  millions  of  dollars  was  about  the 
selling  price  of  the  securities? 

Mr.  Gary.  They  had  borrowed  thirty  or  forty. 

Mr.  Gardner.  But  they  had  against  that  the  Tennessee  Coal  & 
Iron  stock,  which  was  worth  something? 


Absorption  of  the  Tennessee  Railroad  Company    299 

Mr.  Gary.  And  various  other  stocks.  I  do  not  know  the  details 
of  those  loans.  But  here  is  a  thing  I  would  like  to  have  you  get 
in  your  mind;  it  is  important:  Most  of  the  gentlemen  who  were 
participants  in  this  syndicate,  so-called,  who  were  wealthy  men — 
many  of  them,  at  least — were  not  obligated  at  all  on  the  Moore  & 
Schley  loans;  but,  as  I  understood  it,  and  as  I  believed  from  their 
acts  at  the  time,  they  were  very  glad  to  turn  in  their  stock,  which 
they  owned  at  these  prices  which  were  agreed  upon.  But  just  how 
much  of  the  bonds  which  we  turned  over  were  needed  by  Moore  & 
Schley  to  take  care  of  themselves  we  were  never  informed. 

Mr.  Gardner.  Here  is  what  I  want  to  get  at.  You  said  you  and 
Mr.  Frick  decided  that  the  stock  was  worth  from  60  to  65,  in  your 
opinion. 

Mr.  Gary.  Not  more  than  that. 

Mr.  Gardner.  That  is  all  you  cared  to  pay  for  it,  ordinarily? 

Mr.  Gary.  Yes. 

Mr.  Gardner.  But  on  account  of  Mr.  Morgan's  representation 
to  you  that  if  Moore  &  Schley  failed  it  would  be  followed  by  a 
financial  panic  whose  size  could  not  be  measured,  you  finally  gave 
them  100  for  that  which  you  thought,  only  as  a  business  venture 
taken  by  itself,  to  be  worth  only  $65;  in  other  words,  that  you 
came  to  the  rescue  of  Moore  &  Schley  to  the  extent  of  over 
$30,000,000? 

Mr.  Gary.  Not  over  30,000,000. 

Mr.  Gardner.  Why  not? 

Mr.  Gary.  You  mean  the  total? 

Mr.  Gardner.  You  gave  them  in  bonds,  which  were  convertible 
into  cash,  somewhere  from  79  to  84  of  its  face  value;  you  gave  them 
$30,000,000.  That  is,  what  they  could  use  as  cash.  That  is  what  I 
want  to  get  into  my  mind,  whether  that  great  amount  of  money 
was  necessary  to  avert  this  calamity  which  was  impending,  in  view 
of  the  fact  that  a  large  number  of  holders  in  the  pool  of  Moore  & 
Schley  were  men  whose  interest  it  was  obviously  to  share  with  you 
that  cost  of  averting  a  panic? 

Mr.  Gary.  I  do  not  know  the  figures  with  respect  to  the  indebted- 
ness of  Moore  &  Schley,  which  was  secured  by  this  stock ;  nor  do  I 
know  how  many  other  members  of  the  syndicate  owed  and  had  put 
up  that  stock.  Mr.  Schley,  in  his  testimony,  refers  to  the  fact  that  a 
good  deal  of  it  was  up.  I  do  not  know  how  much,  and  we  never 
had  those  figures.  What  we  did  know,  or  what  we  were  informed, 
was  that  eight  or  nine  million  dollars  was  not  sufficient,  and  we 


300  Industrial  Combinations  and  Trusts 

were  also  told  that  there  was  no  way  of  preventing  this  failure  except 
by  the  purchase  of  the  whole  of  the  stock. 

Mr.  Gardner.  At  ioo  per  cent? 

Mr.  Gary.  At  ioo  per  cent.  Now,  I  suspect  that  members  of 
that  syndicate  who  were  not  in  debt  said  to  Schley:  "We  have  put 
this  stock  in  your  hands'  with  an  agreement  that  it  shall  not  be 
sold  by  you  unless  sold  at  a  profit,  and  it  has  cost  us  about  no" — 
I  think  Schley  said  it  stood  him  in  at  that — "and  we  will  not  allow 
you  to  sell  your  interest  in  that  syndicate  unless  at  the  same  time 
you  put  ours  in  at  the  same  price  and  give  us  a  chance."  That  is 
what  I  suspect;  I  do  not  know  that.  But  I  do  know  those  were 
rich  men,  some  of  them. 

Mr.  Gardner.  You  found  a  situation  in  which  Mr.  Morgan 
said:  "I  do  not  know  whether  you  can  buy  this  or  whether  you  can 
buy  that,  but  here  is  the  fact,  unless  Moore  &  Schley  have  the 
money  they  say  they  must  have  " — which  ultimately  turns  out  to  be 
$30,000,000,  or  its  equivalent — "they  are  going  to  the  wall,  which 
means  general  ruin."  Ordinarily  a  man  would  say  to  himself: 
"Of  course,  it  will  ruin  the  United  States  Steel  Corporation  as  well 
as  it  will  other  people  if  there  is  a  panic,  and  are  there  not  some 
people  around  who  can  share  this  loss  we  are  going  to  stand  in, 
because  we  are  paying  100  for  that  which  we  think  is  worth  only 
65?"  You  would  naturally  have  looked  around  to  see  if  there  was 
not  somebody  who  had  to  pay  his  share  to  pull  Moore  &  Schley 
out  of  the  hole.  Was  there  somebody  else,  or  did  the  whole  burden 
come  on  the  United  States  Steel  Corporation? 

Mr.  Gary.  It  did  finally,  and  would  under  any  circumstances, 
except  to  the  extent  of  about  $3,000,000,  as  I  understand. 

Mr.  Gardner.  Some  of  those  names  there  that  were  read  off  as 
holding  10,300  shares  seem  to  me  like  persons  with  whom  Mr.  Mor- 
gan should  have  influence. 

Mr.  Gary.  Which  one,  for  instance? 

Mr.  Gardner.  Oakleigh  Thorne. 

Mr.  Gary.  I  do  not  think  he  would  have  very  much  influence. 
What  other  one?  There  may  be  some  one  on  there,  but  I  do  not 
think  there  was  anyone  there  that  Mr.  Morgan  would  have  a  par- 
ticular influence  over. 

The  Chairman.  Mr.  John  W.  Gates?  [Laughter.]  In  that  con- 
nection, Judge,  while  they  are  waiting,  are  you  willing  to-day  to 
dispose  of  that  property  for  what  you  paid  for  it? 

Mr.  Gary.  That  is  a  very  pertinent  question,  and  I  would  like  to 


Unive 

Absorption  of  the  Tennessee  Railroad  Company    301 

answer  that  in  just  a  minute.  I  just  want  to  add,  in  answer  to  Mr. 
Gardner's  question,  this  suggestion.  He  has  spoken  of  Mr.  Morgan 
making  these  representations.  There  were  several  other  leading 
bankers,  whose  names  I  do  not  now  remember,  all  of  whom  were 
very  much  excited,  and  who  made  the  same  representations;  that 
is,  the  representations  which  Mr.  Morgan  made,  as  I  understood, 
were  that  if  Moore  &  Schley  failed,  and  these  loans,  therefore,  in 
these  various  banks  were  put  in  a  position  where  the  clearing  house 
could  not  approve  them,  then  he  could  not  answer  for  the  results. 
That  was  the  statement,  and  Mr.  Morgan  said,  "Now,  Mr.  Ledyard 
tells  me  that  unless  this  stock  is  purchased  Moore  &  Schley  must 
fail.  That  is  his  opinion,  and  he  has  no  doubt  about  it.  Those 
are  the  facts. " 

Mr.  Gardner.  What  I  was  trying  to  get  at  was,  why  you  did  not 
have  any  partners  in  misery. 

Mr.  Gary.  I  presume  you  have  been  in  trouble  before,  when  you 
have  seen  a  large  portion  of  the  people  surrounding  the  trouble  run 
in  all  directions.  Mr.  Morgan  is  the  one  man  who,  on  such  occasions, 
will  rise  to  the  occasion  and  put  his  own  money  into  the  other  banks 
or  on  the  stock  exchange  or  anywhere  to  prevent  the  panic  or  pre- 
vent trouble,  and  give  the  use  of  his  name  and  his  credit  to  help 
people  who  are  in  financial  distress.  He  has  done  it  over  and  over 
again,  and  on  this  occasion  no  doubt  he  risked  many,  many  million 
dollars  of  his  own  money  in  order  to  try  to  avert  the  panic.  But 
that  is  not  true  of  all  others.  It  is  true,  though,  that  on  this  occasion 
many  of  the  leading  bankers  of  New  York  gathered  around  Mr.  Mor- 
gan, and  with  him  became  responsible  for  large  sums  of  money. 
They  were  all  obligated  in  many  directions  and  in  large  sums,  and 
these  bankers  believed  from  the  representations  which  had  been 
made  to  them  that  the  United  States  Steel  Corporation — or,  at 
least,  they  hoped — could  afford  to  buy  this  stock  and  help  out 
the  situation  and  finally  recoup  itself  against  loss.  So  that  it  may 
not  be  true,  and  I  have  not  said  that  as  a  final  result  the  United 
States  Steel  Corporation  made  a  heavy  loss.  I  would  be  glad  to 
give  you  my  opinion. 

Mr.  Gardner.  We  do  not  expect  you  to  make  a  loss,  because 
the  panic  was  terminated.  But  naturally  you  took  your  risk  of  a 
loss.  What  I  want  to  get  through  my  mind  is,  why  you  had  alone 
to  make  a  present  to  Moore  &  Schley — and  that  is  what  you  did 
in  paying  100  for  that  of  which  the  market  value  was  only  70  per 
cent — why  you  alone  had  to  stand  in  the  way  of  that  thunderstorm. 


3<D2  Industrial  Combinations  and  Trusts 

Mr.  Gary.  Because  there  was  no  other  customer  for  that  stock; 
because  if  that  stock  had  been  put  on  the  market  the  price,  before 
it  had  been  sold,  would  have  gone  down  very  much  below  65,  in 
my  opinion.  I  believe  that  company  would  have  been  in  bank- 
ruptcy in  a  very  short  time  if  it  had  not  had  help. 

Mr.  Gardner.  Suppose  you  had  adhered  to  your  original  offer  of 

go? 

Mr.  Gary.  Then,  perhaps,  we  would  not  have  gotten  the  stock. 
Perhaps  Moore  &  Schley  would  have  made  an  assignment  and 
precipitated  all  this  trouble.  If  it  was  true,  as  represented,  that 
the  90  would  not  let  him  out 

Mr.  Gardner.  How  would  he  be  better  off  by  making  an  assign- 
ment? 

Mr.  Gary.  He  would  not  be  any  better  off;  but  the  financial 
conditions  would  be  very  much  worse  off. 

Mr.  Gardner.  But  I  was  thinking,  what  could  his  possible 
motive  be  in  refusing  that  offer? 

Mr.  Gary.  He  could  not  get  through. 

Mr.  Gardner.  If  he  would  have  to  take  less  in  the  long  run? 

Mr.  Gary.  If  he  would  have  had  to.  If  he  was  going  to  fail,  he 
might  as  well  fail  for  an  old  sheep  as  a  lamb. 

Mr.  Gardner.  He  might  as  well  pull  other  people  down  with 
him? 

Mr.  Gary.  I  suppose  there  are  still  some  Sampsons  in  the  world. 
I  do  not  know  whether  he  might  be  of  that  disposition. 

Mr.  Lindabury.  He  probably  could  not  get  his  stock  out  of 
"hock." 

Mr.  Gardner.  That  is  very  likely.  I  want  to  get  clearly  in  my 
mind  why  it  was  that  the  United  States  Steel  Corporation  paid 
100  finally  for  that  which  you  had  determined  was  worth  only  65, 
and  that  you  alone  were  the  people  doing  it.  I  can  perfectly  under- 
stand that  if  you  were  the  only  people  who  would  do  it,  it  might 
pay  you  very  well  to  do  it. 

Mr.  Gary.  That  is  the  answer. 

Mr.  Gardner.  That  you  had  exhausted  all  other  possibilities? 

Mr.  Gary.  That  is  the  answer. 

Mr.  Littleton.  Will  you  take  up  the  thread  of  your  story  where 
you  had  it  a  moment  ago? 

Mr.  Gary.  Very  well. 

Mr.  Littleton.  You  agreed  to  pay  100. 

Mr.  Gary.  I  think  that  was  Sunday  night.    We  had  a.  meeting 


Absorption  of  the  Tennessee  Railroad  Company     303 

of  the  finance  committee  as  late  as  11  o'clock,  and  maybe  12  o'clock, 
Sunday  night. 

Mr.  Young.  Had  you  seen  the  President  previous  to  that? 

Mr.  Gary.  No.  I  think  it  was  about  10  o'clock  when  I  called  up 
the  private  secretary  of  the  President  and  asked  him  to  make  an 
apointment  for  Mr.  Frick  and  me  to  meet  the  President  at  the 
earliest  practicable  hour  the  next  morning.  He  got  in  communica- 
tion with  the  President  and  said  the  President  would  see  us  at  10 
o'clock  Monday  morning,  as  I  remember  it.  We  held  a  meeting  of 
the  finance  committee  very  late  that  night,  and  immediately  after- 
ward Mr.  Frick  and  I  secured  a  special — an  engine  and  a  car — and 
went  to  Washington.  We  might  have  started  later,  considerably 
later,  but  we  arrived  in  Washington,  I  think,  about  8  o'clock,  or  if 
we  arrived  earlier  we  did  not  get  up  before  about  8  o'clock.  I  sug- 
gested to  Mr.  Frick  that,  notwithstanding  our  appointment  at  10 
o'clock,  we  had  better  go  to  the  office  of  the  President  and  endeavor 
to  see  the  President  before  10  o'clock.  Mr.  Morgan  had  said  the 
conditions  in  New  York  were  so  critical  he  would  like  to  know  the 
opinion  of  Mr.  Frick  and  myself  at  the  very  earliest  moment.  We 
went  to  the  office  of  the  President  and  saw  his  secretary  there,  I 
think,  at  about  9  o'clock.  I  will  not  undertake  to  be  strictly  ac- 
curate as  to  the  hour,  but  I  think  it  was  about  9  o'clock  that  we 
arrived  at  the  office  of  the  secretary.  I  briefly  stated  our  business, 
and  the  secretary  said  the  President  was  at  breakfast;  it  was  not  his 
custom  to  come  to  his  office  before  10  o'clock — I  understood  that 
was  his  rule — and  he  was  not  accustomed  to  seeing  anyone  until 
after  he  had  had  a  chance  to  look  at  his  mail.  I  asked  him  if  he 
would  go  to  the  President  where  he  was  breakfasting  and  say  to 
him  that  Mr.  Frick  and  I  were  here;  that  we  considered  it  very 
important  to  see  him  immediately,  and  ask  him  if  he  would  make  an 
exception.  He  returned  with  the  President,  and  the  President  said 
at  once,  after  hearing  the  story,  that  he  would  like  to  consult  the 
Department  of  Justice.  I  think  Mr.  Bonaparte  was  out  of  the  city. 
The  President  then  directed  that  Secretary  Root  be  requested  to 
come  to  the  office  of  the  President  immediately.  I  am  not  sure 
whether  this  interview  was  in  the  office  or  one  of  the  rooms  in  the 
White  House.  That  is  not  important,  of  course;  I  may  be  mistaken 
about  that;  I  rather  think  it  was  in  the  White  House.  But,  wher- 
ever we  were,  the  President  requested  Mr.  Root  to  come  to  where 
the  President  was  immediately.  Mr.  Root  appeared  very  soon 
after.    The  President  then  asked  me  to  again  state  the  case  in 


304  Industrial  Combinations  and  Trusts 

Mr.  Root's  presence,  which  I  did.  The  result  of  that  interview  I  im- 
mediately telephoned  to  New  York.  The  secretary  to  the  President 
had  kept  the  telephone  open. 

Mr.  Littleton.  Did  the  President  ask  Mr.  Root  his  opinion  on 
this  question? 

Mr.  Gary.  He  did. 

Mr.  Littleton.  As  to  the  validity  and  legality  of  this? 

Mr.  Gary.  He  did.  There  was  no  disagreement  between  us. 
Now,  gentlemen  of  the  committee,  I  have  a  record  of  the  substance 
of  what  took  place  on  that  occasion,  and  I  see  no  reason  for  not 
giving  it  to  this  committee. 

Mr.  Littleton.  We  would  like  very  much  to  have  it. 

Mr.  Gary.  I  have  never  been  requested  not  to  give  it  to  the  com- 
mittee nor  requested  to  treat  it  as  confidential. 

Mr.  Young.  When  was  this  record  made  up,  Mr.  Gary? 

Mr.  Gary.  I  will  give  you  the  dates.  On  November  7,  1907,  two 
days  after  Mr.  Frick  and  I  visited  the  White  House,  I  wrote  to 
Secretary  Root  as  follows : 

November  7,  1907. 

My  Dear  Mr.  Secretary:  At  the  recent  interview  at  the  White  House  be- 
tween the  President,  yourself,  Mr.  Frick,  and  myself,  I  stated,  in  substance, 
that  our  corporation  had  the  opportunity  of  acquiring  more  than  one-half  of 
the  capital  stock  of  the  Tennessee  Coal,  Iron  &  Railroad  Co.  at  a  price  some- 
what in  excess  of  what  we  believed  to  be  its  real  value,  and  that  it  had  been 
represented  that  if  the  purchase  should  be  made  it  would  be  of  great  benefit 
to  financial  conditions,  and  would  probably  save  from  failure  an  important 
business  concern;  that  under  the  circumstances  Mr.  Frick  and  I  had  decided 
to  favor  the  proposed  purchase  of  stock  unless  the  President  objected  to  the 
same.  I  further  stated  that  the  total  productive  capacity  of  our  companies 
would  not  be  materially  increased  by  the  ownership  of  the  properties  of  the 
Tennessee  Co.,  and,  after  the  purchase,  would  probably  not  amount  to  more 
than  60  per  cent  of  the  total  steel  production  in  this  country,  which  was  about 
the  percentage  of  our  companies  at  the  time  of  the  organization  of  the  United 
States  Steel  Corporation;  that  our  policy  was  opposed  to  securing  a  monopoly  in 
our  lines  or  even  a  material  increase  of  our  relative  capacity.  I  understood 
the  President  to  say  that  while  he  would  not  and  could  not  legally  make  any 
binding  promise  or  agreement  he  did  not  hesitate  to  say  from  all  the  circum- 
stances as  presented  he  certainly  would  not  advise  against  the  proposed  pur- 
chase. 

If  consistent  will  you  kindly  write  me  if  the  above  statement  is  in  accordance 
with  your  understanding  and  recollection? 

Sincerely,  yours,  E.  H.  Gary. 

Mr.  Root  responded  as  follows: 

November  ii,  1907. 
My  Dear  Mr.  Gary:  I  have  your  letter  of  November  7.    It  fully  agrees  with 
my  recollection  of  the  interview  to  which  you  refer,  in  which  you  stated  to  the 


Absorption  of  the  Tennessee  Railroad  Company     305 

President  the  circumstances  under  which  the  United  States  Steel  Corporation 
had  been  asked  to  relieve  the  financial  situation  by  purchasing  a  majority  of 
the  stock  of  the  Tennessee  Coal,  Iron  &  Railroad  Co.  I  have  sent  a  copy  of 
your  letter,  with  this  answer,  to  the  President,  with  a  recommendation  that  it 
be  transmitted  to  the  Department  of  Justice  for  filing  there. 

Very  sincerely,  yours,  Elihu  Root. 

I  received  another  letter  from  Mr.  Root,  as  follows: 

November  20,  1907. 
Dear  Mr.  Gary:  I  inclose  a  copy  of  a  letter  which  I  have  sent  to  the  Presi- 
dent inclosing  a  copy  of  your  letter  of  November  7,  and  a  copy  of  the  President's 
answer.    You  have  a  complete  copy  of  what  you  will  be  able  to  find  upon  the 
files  of  the  Department  of  Justice  if  any  occasion  arises. 

Very  sincerely,  yours,  Elihu  Root. 

Inclosed  were  the  following  copies.  First,  from  Mr.  Root  to  the 
President,  dated  November  11,  1907: 

Dear  Mr.  President:  I  transmit  herewith  a  copy  of  a  letter  from  Mr.  E.  H. 
Gary,  president  of  the  United  States  Steel  Corporation,  dated  November  7, 
1907,  received  by  me  on  the  following  day.  You  will  perceive  that  it  relates  to 
the  interview  which  Mr.  Gary  had  with  you  last  week  regarding  the  purchase 
by  his  company  of  the  capital  stock  of  the  Tennessee  Coal,  Iron  &  Railroad 
Co.  I  send  also  a  copy  of  my  answer  to  Mr.  Gary,  and  recommend  that  these 
papers  be  sent  to  the  Department  of  Justice  and  placed  upon  the  files  of  that 
department. 

Very  truly,  yours,  Elihu  Root. 

A  letter  from  the  President  to  the  Secretary  of  State: 

November  19,  1907. 
My  Dear  Mr.  Secretary:  I  am  in  receipt  of  your  letter  of  the  nth  instant 
and  inclosures,  and  have  forwarded  them  to  the  Attorney  General  to  be  placed 
on  the  files  of  the  Department  of  Justice,  together  with  a  copy  of  this  letter. 
Mr.  Gary  states  the  facts  as  I  remember  them. 

Very  truly,  yours,  Theodore  Roosevelt. 

Mr.  Littleton.  Is  there  any  additional  fact,  outside  of  that 
contemporaneous  record,  which  you  remember,  Judge  Gary,  of  the 
events  of  that  visit? 

Mr.  Gary.  I  remember  some  of  the  conversation.  I  remember 
the  Secretary  of  State  saying  to  the  President  that  of  course  he  had 
no  right  to  say  that  we  could  buy  this  property.  The  President  said 
he  understood  that.  He  thought  all  we  wished  to  know  was  what 
would  be  the  disposition  of  the  President  and  the  Department  of 
Justice  in  case  we  did  buy,  for  the  reason  that  if  there  was  an  objec- 
tion by  the  Government  we  would  not  accomplish  the  desired  result. 

I  remember  the  President  saying  he  was  glad  to  know  that  the 
percentage  in  production  of  the  steel  of  this  country  of  the  United 


306  Industrial  Combinations  and  Trusts 

States  Steel  Corporation  was  not  greater  and  was  even  less  than  it 
was  at  the  time  of  the  organization  of  the  company;  that  he  felt, 
as  I  knew,  that  the  question  of  monopolies  in  this  country  was  a 
very  serious  one,  but  he  said : 

In  view  of  the  fact  that  your  percentage  has  not  increased,  but  has  decreased, 
and  the  further  fact  that  all  of  us  have  an  appreciation  of  the  financial  condi- 
tions in  New  York,  I  do  not  believe  that  anyone  could  justly  criticize  me  for 
saying  that  I  would  not  feel  like  objecting  to  the  purchase  under  the  circum- 
stances. 

Now,  I  know  it  is  believed  by  the  chairman  of  this  committee, 
from  statements  which  he  has  made,  that  Mr.  Frick  and  I  misrep- 
resented the  facts  to  the  President.  Of  course  I  regret  that  very 
much,  and  I  am  going  to  try  to  show  to  the  committee,  if  I  am 
permitted 

The  Chairman  (interposing).  That  you  possibly  misled  him 
unintentionally? 

Mr.  Gary.  Of  course  I  would  not  intentionally  misrepresent  your 
statement. 

The  Chairman.  The  chairman  did  not  mean  to  make  that  state- 
ment quite  that  bald. 

Mr.  Gary.  I  want  to  satisfy  the  chairman  and  the  committee,  if 
I  can,  by  the  facts  and  figures,  that  we  did  not  make  any  misrepre- 
sentation. I  believe  everyone  connected  with  the  United  States 
Steel  Corporation  cares  more  for  his  conduct  and  his  reputation  and 
his  character  than  he  does  in  regard  to  the  question  of  making  or 
losing  a  few  dollars.  I  want  to  satisfy  you  of  that,  if  I  can,  by  the 
facts  and  figures,  which  are  undisputed. 

The  Chairman.  Since  the  gentleman  has  been  free  to  mention  the 
attitude  of  the  chairman  in  the  matter,  I  would  like  to  say  that  the 
chairman  is  now  sitting  in  a  judicial  capacity,  notwithstanding  the 
fact  that  he  was  the  proponent  of  the  resolution.  The  chairman 
will  say  to  the  gentleman  that  after  a  careful  investigation  of  such 
information  as  was  obtainable,  such  information  being  the  sworn 
testimony  and  statement  before  the  Committee  on  the  Judiciary 
in  the  Senate  of  the  United  States,  his  opinions  in  that  matter  were 
predicated  upon  that  sworn  testimony  as  to  the  facts.  His  opinions 
as  to  the  law  were  predicated  upon  such  poor  authority,  if  the 
gentleman  so  deems  it,  as  the  opinions  of  Senator  Culberson,  Senator 
Foraker,  Senator  Bacon,  and  the  other  jurists,  who  until  this  time 
I  considered  quite  able  men,  who  expressed  themselves  in  terms 
equally  as  explicit  as  the  chairman  of  this  committee.    The  chair- 


Absorption  of  the  Tennessee  Railroad  Company     307 

man  regarded  the  absorption  of  the  company,  at  that  time  a  com- 
peting company,  by  the  tacit  approval  of  the  President,  with 
genuine  grief  and  profound  astonishment. 

Mr.  Gary.  I  have  always  regretted  that  the  full  facts  in  regard  to 
the  acquisition  of  the  stock  of  the  Tennessee  Coal  &  Iron  Co.  were 
not  developed  before  the  Judiciary  Committee  of  the  Senate,  to 
which  you  have  referred. 

Mr.  Littleton.  The  only  witnesses  who  testified  on  that  occasion 
were  Schley,  Thorne,  Perkins,  and  Herbert  Knox  Smith,  so  far  as 
the  record  shows.  Did  you  see  the  correspondence  from  the  Presi- 
dent to  the  Attorney  General  that  followed  your  visit? 

Mr.  Gary.  I  have  seen  that  many  times;  yes,  sir;  I  saw  it  pub- 
lished. 

Mr.  Littleton.  I  think  it  should  go  into  the  record  at  this  time — 
the  complete  correspondence. 

(The  letter  from  the  President  to  the  Attorney  General,  referred 
to  by  Mr.  Littleton,  follows:) 

The  White  House, 
Washington,  November  4,  1907. 

My  Dear  Mr.  Attorney  General:  Judge  E.  H.  Gary  and  Mr.  H.  H.  Frick, 
on  behalf  of  the  steel  corporation,  have  just  called  on  me.  They  state  that  there 
is  a  certain  business  firm  (the  name  of  which  I  have  not  been  told,  but  which 
is  of  real  importance  in  New  York  business  circles)  which  will  undoubtedly 
fail  this  week  if  help  is  not  given.  Among  its  assets  are  a  majority  of  the  se- 
curities of  the  Tennessee  Coal  Co.  Application  has  been  urgently  made  to 
the  steel  corporation  to  purchase  this  stock  as  the  only  means  of  avoiding  a 
failure.  Judge  Gary  and  Mr.  Frick  inform  me  that  as  a  mere  business  trans- 
action they  do  not  care  to  purchase  the  stock,  and  under  ordinary  circum- 
stances they  would  not  consider  purchasing  the  stock  because  but  little  benefit 
will  come  to  the  steel  corporation  from  the  purchase;  that  they  are  aware  that 
the  purchase  will  be  used  as  a  handle  for  attack  upon  them  on  the  ground  that 
they  are  striving  to  secure  a  monopoly  of  the  business  and  prevent  competi- 
tion— not  that  this  would  represent  what  could  be  honestly  said,  but  what 
might  be  recklessly  and  untruthfully  said.  They  further  inform  me  that  as  a 
matter  of  fact  the  policy  of  the  company  has  been  to  decline  to  acquire  more 
than  60  per  cent  of  the  steel  properties,  and  that  this  purpose  has  been  per- 
severed in  for  several  years  past,  with  the  object  of  preventing  these  accusa- 
tions, and,  as  a  matter  of  fact,  their  proportion  of  steel  properties  has  slightly 
decreased,  so  that  it  is  below  this  60  per  cent,  and  the  acquisition  of  the  prop- 
erty in  question  will  not  raise  it  above  60  per  cent.  But  they  feel  that  it  is 
immensely  to  their  interest,  as  to  the  interest  of  every  responsible  business 
man,  to  try  to  prevent  a  panic  and  general  industrial  smash  up  at  this  time,  and 
that  they  are  willing  to  go  into  this  transaction,  which  they  would  not  other- 
wise go  into,  because  it  seems  the  opinion  of  those  best  fitted  to  express  judg- 
ment in  New  York  that  it  will  be  an  important  factor  in  preventing  a  break 
that  might  be  ruinous;  and  that  this  has  been  urged  upon  them  by  the  com- 
bination of  the  most  responsible  bankers  in  New  York  who  are  now  thus  en- 


308  Industrial  Combinations  and  Trusts 

gaged  in  endeavoring  to  save  the  situation.  But  they  asserted  they  did  not 
wish  to  do  this  if  1  slated  it  ought  not  to  be  done.  I  answered  that  while  of 
course  I  could  not  advise  them  to  take  the  action  proposed,  I  felt  it  no  public 
duty  of  mine  to  interpose  any  objection. 

Sincerely,  yours,  Theodore  Roosevelt. 

Hon.  Charles  J.  Bonaparte, 

Attorney  General. 

Mr.  Littleton.  Did  you  or  Mr.  Frick  tell  the  President  what 
company  was  to  be  saved  from  failure? 

Air.  Gary.  I  believe  not;  I  think  not. 

Mr.  Littleton.  On  the  question  of  the  salvation  of  the  company 
from  failure  let  me  ask  this  question:  Moore  &  Schley  could  not 
have  failed  for  a  large  amount  of  money  unless  the  loans  which 
they  had  in  the  banks  were  called,  could  they?    It  is  not  likely? 

Mr.  Gary.  I  would  not  say  that  it  was  likely;  of  course,  I  do 
not  know. 

Mr.  Littleton.  Did  anybody  ascertain  the  number  and  amounts 
of  the  loans  which  they  had  in  the  banks  at  that  time? 

Mr.  Gary.  We  endeavored  to  verify  the  statement  of  Moore  & 
Schley.  I  sent  two  representatives  to  their  books  who  made  an 
examination.  I  have  attempted  since  I  was  subpoenaed  to  come 
before  this  committee  to  get  the  result  of  that  examination.  One 
of  the  gentlemen,  and  the  one  who  was  best  informed  in  regard 
to  the  result,  I  could  not  find.  I  have  forgotten  his  name,  but  it  is 
not  material.  He  has,  I  think,  left  the  city.  I  could  not  find  him. 
Mr.  Joyce,  the  other  one,  has  only  a  general  recollection.  He  says 
that  he  remembers  he  reported  to  me  that  their  loans  were  very 
large,  and  that  the  securities  were  distributed  throughout  the 
different  banks. 

Of  course  you  know  how  the  business  of  a  broker  is  done.  He 
buys  stock  for  his  client,  and  his  client  may  deposit  a  margin  in 
cash,  and  he  takes  the  stock  and  goes  to  a  bank  and  borrows  money 
on  the  stock  and  puts  that  up  as  collateral. 

Mr.  Littleton.  Only  a  pledge? 

Mr.  Gary.  Only  a  pledge. 

Mr.  Littleton.  In  order  to  make  this  transaction  justifiable 
in  the  afterview,  whatever  might  have  been  the  foreview  of  it  at 
that  time,  it  was  easy  for  you  to  have  been  deceived,  unless  you  ac- 
tually knew  the  amount  of  money  which  Moore  &  Schley  owed,  as 
to  the  dire  necessity  of  purchasing  this  property? 

Mr.  Gary.  I  woidd  think  so.  I  think  we  were  deceived,  whether 
intentionally  or  otherwise,  in  this  respect.     I  believed  at  that  time, 


Absorption  of  the  Tennessee  Railroad  Company    309 

although  I  presume  it  was  not  so  represented,  that  Moore  &  Schley 
had  a  very  much  larger  amount  of  the  Tennessee  Coal  &•  Iron  stock 
as  collateral  than  I  now  believe,  after  seeing  this  syndicate  arrange- 
ment, they  had  actually  deposited,  unless  the  stocks  of  many  of  these 
rich  men  were  deposited  on  account  of  indebtedness  by  the  members 
of  this  syndicate  to  Moore  &  Schley. 

Mr.  Littleton.  Do  you  think  the  syndicate  was  enlarged  when 
the  prospect  of  the  sale  of  the  stock  brightened? 

Mr.  Gary.  /  do  not  know  that  it  was  at  that  time.  I  have  an  opin- 
ion, not  justified  by  evidence,  that  when  that  syndicate  was  formed 
arui  that  stock  purchased  there  was  a  hope  on  the  part  of  some  that 
the  stock  could  be  sold  to  the  United  States  Steel  Corporation.  I  would 
not  like  to  do  anyone  an  injustice.    That  may  not  be  true.1 

Mr.  Littleton.  When  you  went  to  the  President  and  met  him 
and  the  Secretary  of  State,  knowing,  as  you  have  stated,  that  if  it 
were  a  violation  of  the  law  no  absolution  could  be  given  by  them,  it 
amounted,  did  it  not,  to  your  obtaining  the  opinion  of  the  President 
and  Secretary  of  State  as  to  whether  it  was  a  violation  of  law? 

Mr.  Gary.  I  do  not  know  that  I  would  quite  assent  to  that 
opinion.  I  did  reach  the  conclusion  that  if  we  acquired  those 
securities  and  there  should  afterwards  be  any  proceeding  of  any  sort 
on  behalf  of  the  Government  against  us  to  set  aside  or  prevent  the 
consummation  of  that  purchase  or  do  anything  else  it  would  be  a 
great  outrage. 

Mr.  Littleton.  And  if  any  subsequent  proceedings  were  taken 
against  the  company  after  this  purchase  were  made  under  these 
circumstances  the  company  would  have  rather  a  strong  defense, 
would  it  not,  in  stating  its  position  to  the  Government? 

Mr.  Gary.  I  would  think  so,  if  Mr.  Martin  Littleton  was  defend- 
ing the  case  with  his  ability  to  express  himself. 

Mr.  Littleton.  That  is  very  complimentary,  Judge,  and  I  appre- 
ciate it. 

I  notice  in  the  letter  of  Mr.  Bonaparte  the  following: 

On  November  4,  1907,  the  President  addressed  to  me  a  letter  of  which  I 
inclose  a  copy.  At  the  time  of  the  visit  to  him  by  Messrs.  Frick  and  Gary,  to 
which  reference  is  made  in  this  letter,  I  was  absent  from  Washington,  but 
after  the  letter  had  been  written  and  before  it  reached  me  I  had  a  brief  con- 
versation with  the  President  in  which  I  was  informed,  in  substance,  of  the 
facts  stated  more  in  detail  in  the  letter  itself.  In  this  conversation  I  advised 
the  President  that,  so  far  as  the  Department  of  Justice  was  informed,  no  rea- 
son existed  to  believe  that  the  United  States  Steel  Corporation  or  its  officers, 

1  All  the  preceding  italics  are  the  editor's. 


310  Industrial  Combinations  and  Trusts 

directors,  or  stockholders  were  subject  to  prosecution  or  civil  action  under 
the  Sherman  antitrust  law,  and  that,  supposing  such  to  be  the  fact,  the  informa- 
tion conveyed  to  him  by  Messrs.  Trick  and  Gary  did  not  materially  alter  the 
existing  situation. 

Were  you  familiar  with  that  letter? 

Mr.  Gary.  No;  I  was  not.  That  is  from  the  Attorney  General  to 
the  President? 

Mr.  Littleton.  I  am  wrong  about  that.  It  is  a  quotation  by  the 
Attorney  General  from  another  letter  of  his  which  was  written  to 
the  President,  and  this  is  contained  in  a  letter  to  the  chairman  of 
the  Judiciary  Committee  of  the  United  States  Senate. 

Mr.  Gary.  I  never  had  any  knowledge  or  information. 

Mr.  Littleton.  He  says: 

I  added  the  statement  in  substance  that,  in  my  opinion,  based  upon  certain 
decisions  of  the  Supreme  Court,  and  especially  the  Knight  case  (156  U.  S.,  1), 
the  transaction  said  by  Messrs.  Gary  and  Frick  to  be  in  contemplation  would 
not  in  itself  constitute  an  offense  against  the  said  law  or  furnish  grounds  for 
action  by  the  Government  to  enjoin  its  consummation;  but  if  this  transaction 
had  been  preceded  or  should  be  followed  by  a  series  of  others  of  like  nature  a 
materially  different  situation  would  be  presented  and  the  case  would  become, 
in  some  measure,  analogous  to  those  of  the  Standard  Oil  Co.  and  the  Tobacco 
Trust  and  other  combinations  of  the  like  nature.  In  the  same  conversation 
the  President  asked  my  opinion  as  to  the  legal  correctness  of  the  attitude  he 
(the  President)  had  assumed  in  his  conversation  with  the  gentlemen  in  ques- 
tion, that  attitude  being,  in  substance,  that  while  he  had  no  right  to  advise 
them  to  take  the  course  they  proposed  or  make  any  suggestion  to  them  in  the 
premises,  he  was  not  called  upon  to  interpose  any  objection,  and  I  replied  that, 
in  my  opinion,  such  course  by  the  President  was  strictly  appropriate  under  the 
law. 

Judge  Gary,  if  you  have  had  time  enough  to  consider  it,  do  you 
understand  him  to  mean  if  it  had  been  preceded  by  a  similar  trans- 
action or  followed  by  a  similar  transaction? 

Mr.  Lindabury.  Once  again,  apologizing  for  making  an  objec- 
tion, might  I  suggest  that  Judge  Gary's  interpretation  of  Mr.  Bona- 
parte's letter  to  the  President  would  hardly  be  proper? 

Mr.  Littleton.  We  have  such  abundant  power  to  overrule  the 
objection  that  I  will  withdraw  the  question. 

Mr.  Gary.  I  do  not  think  I  quite  finished  the  statement  in 
regard  to  the  examination  of  the  purchase  of  these  securities, 
although  I  have  nearly  done  so. 

I  returned  to  New  York,  and  we  entered  an  agreement  for  the 
purchase  of  the  stock,  or  the  properties  through  the  stock,  in  the 
meantime  having  made  as  careful  and  full  an  examination  as  we 


Absorption  of  the  Tennessee  Railroad  Company    311 

could  in  regard  to  the  properties,  such  examination  having  com- 
menced almost  from  the  very  beginning  of  the  negotiations  or  the 
request  to  purchase. 

I  remember  that  Mr.  Gates  says  in  his  testimony  that  he  insisted 
that  the  board  of  directors  pass  a  resolution  that  the  minority  stock- 
holders should  have  the  right  to  turn  in  their  stock  at  the  same  price. 
He  may  have  insisted  upon  that.  I  have  no  recollection  of  his  hav- 
ing done  so.  If  he  did,  it  would  seem  to  me  as  rather  forcing  us  to 
buy  stock  instead  of  forcing  them  to  sell  stock,  but,  be  that  as  it 
may,  the  original  memorandum  of  agreement  provided  that  we 
would  take  the  minority  stock  at  the  same  price.  That  agreement 
was  consummated  before  Mr.  Gates  returned  from  abroad — before 
he  landed  in  this  country — and  so  I  am  inclined  to  think  that  he  is 
mistaken  about  that,  so  far  as  I  am  concerned. 

I  would  like  at  the  proper  time,  and  as  you  may  desire,  to  state 
to  you  some  of  the  values  of  these  properties  and  the  conditions  of 
this  company. 


CHAPTER  XII 

TRUST   METHODS 

NOTE 

A  disproportionally  large  share  of  space  in  this  volume  has  been 
devoted  to  readings  on  the  above  subject.  The  editor  has  felt  that 
this  is  a  most  vital  question.  It  bears  directly  on  the  issue  between 
Competition  and  Combination.  It  is  the  theory  of  the  editor  that 
the  advantages  of  combination  are  to  be  found  chiefly  in  certain 
methods  and  not  in  the  frequently  alleged  economies  of  saving  of 
cross  freights,  saving  in  advertising  and  in  salesmen,  superior 
managerial  ability,  etc.  etc.  It  is  a  very  serious  question  whether, 
should  certain  practices  be  prevented,  the  alleged  natural  tendency 
to  combination  would  not  vanish  into  thin  air. 

The  exhibits  given  need  no  comment.  They  are  made  up  of 
excerpts  drawn  from  Government  investigations  and  from  the 
briefs,  petitions,  indictments  and  other  documents  in  the  various 
suits  brought  by  the  Government  under  the  Sherman  Act.  For 
the  purpose  of  affording  greater  convenience  of  study  they  have 
been  subdivided  into  a  series  of  groups  each  under  a  particular 
heading. — Ed. 

GROUP  i 

Exhibit  i 


company 


The  Government  alleges  that: 

In  September,  iqio,  defendants,  in  pursuance  of  their  general 
purpose,  through Company,  of  New  Jersey,  ac- 
quired  the  business  of  G.  ,  who   was   engaged   in    the 

manufacture  of   machines    designated    and   adapted   for   use    in 

performing  all  the  principal  operations  in  the  manufacture  of 

and which  can  be  performed  by  the  aid  and  use  of  machinery. 

1  United  States  of  America  v. Co.    Petition,  In  the  

Court  of  the  United  States  for  the  District  of ,  pp.  66-70. 

312 


Trust  Methods  313 

For  at  least  two  years  immediately  preceding  September,  1910, 

said had  invented,  and  had  taken  out  letters  patent  of  the 

United  States  and  of  foreign  countries  covering  the  same,  machines 
designed  and  adapted  for  performing  all  the  principal  operations  in 

the  manufacture  of and .    Among  such  machines,  which 

are  too  numerous  to  be  referred  to  specifically  in  this  petition,  were 

machines,  machines,  and machines, 

machines, machines,  and  many  others.    On  or  about 

May  1,  1 9 10,  the  said installed  in  the factory  of G. 

Company,   a    corporation   of    New   Jersey,   issued    capital 

$3,750,000,  with  its  factory  and  principal  offices  at  Boston,  Mass., 

with  a  daily  capacity  of  17,000 of ,  a  complete  set  of  the 

machines  so  owned  and  controlled  by  him,  the  said being  the 

owner  or  in  control  of  a  majority  of  the  capital  stock  of  the 

Company.  For  several  years  prior  to  the  installation  and  use  in 
the  factory  of  the Company  of  the  machines  owned  and  con- 
trolled by G. ,  defendants,  through Com- 
pany, of  New  Jersey,  or  some  one  or  more  of  the  corporations  owned 
and  controlled  by  them,  had  furnished  and  supplied  all  of  the  prin- 
cipal machines  used  in  the  factory  of  the  Company  in  the 

manufacture  of and .  Upon  the  installation  in  said  fac- 
tory of  the  machines  owned  and  controlled  by the  officials 

of  the  Company  caused  the  machines  owned  and  controlled  by 
defendants  to  be  dismantled  and  removed  and  discontinued  the 
payment  of  royalties  on  the  same. 

Thereupon  defendants  instituted  proceedings  against  G. 

Company  in  the  Supreme  Judicial  Court  of  Massachusetts, 

in  which Company,  of  New  Jersey,  was  the  party 

plaintiff,  to  enjoin  the  — —  Company  from  using  the  machines 

which  had  been  supplied  to  it  by G. ;  to  enjoin  said 

from  supplying  or  furnishing  to  the Company  other  machines 

to  be  used  in  the  place  of  machines  owned  and  controlled  by  defend- 
ants, and  to  recover  rents  and  royalties  on  defendants'  machines 

during  the  period  that 's  machines  had  been  used  in  the  factory 

of  the Company.    This  proceeding  was  never  prosecuted  to  a 

final  determination  for  the  reasons  hereinafter  stated. 

G. had  advertised  extensively,  through  the  public  press 

and  otherwise,  for  several  months  prior  to  September,  1910,  the 
machines  which  he  had  invented  for  use  in  the  manufacture  of 

and  ,  and  had  solicited  among  manufacturers  in 

various  parts  of  the  United  States  orders  for  the  sale  and  lease  of 


314  Industrial  Combinations  and  Trusts 

such  machines.    ,  however,  experienced  difficulty  in  obtaining 

orders  for  his  machines  on  account  of  the  arbitrary,  oppressive, 
unreasonable,  and  unlawful  lease  and  license  agreements,  containing 

exclusive-use  and  provisions,   hereinbefore  mentioned  and 

described,  which  defendants  had  theretofore  required  and 

manufacturers  to  sign,  in  order  to  obtain  machines  from  defend- 
ants, and  under  which  such  manufacturers  then  held  all  of  the 

essential  machines  necessary  in  the  manufacture  of and . 

However,  a  concerted  effort  was  made  by  a  number  of  prominent 

and manufacturers  engaged  in  business  in  various  States 

of  the  United  States  to  acquire  the  inventions  and  machines  owned 

and  controlled  by ,  or  an  interest  therein.    Among  such 

and manufacturers  who  were  so  interested  were , & 

Company,  St.  Louis,  Mo.; Company, 

St.  Louis,  Mo. ; Company,  St.  Louis,  Mo. ; Com- 
pany, St.  Louis,  Mo.; Company,  Chicago,  111.;  , 

&  Company,  Chicago,  111.;  and & Company, 

Boston,  Mass. 
Representatives  of  the  above  companies  on  September  22,  1910, 

were  in  Boston,  Mass.,  in  conference  with G.  with  a 

view  to  either  purchasing  an  interest  in  his  inventions  and  machines 
or  to  make  some  arrangement  which  would  enable  them  to  obtain 
machines  for  use  in  their  factories,  and  thereby  be  relieved  from 
the  domination  and  control  of  defendants.  Defendants,  being 
advised  of  the  purpose  and  intent  of  said and manufac- 
turers, and  well  knowing  that  if  any  arrangement  were  made  be- 
tween them  and G. whereby  they  could  obtain  for  use  in 

their  factories  machines  not  owned  and  controlled  by  defendants, 
such  action  would  result  in  defendants'  machines  being  dismantled 

and  removed,  as  had  been  done  in  the  factory  of  the Company, 

and  that  competition  would  be  created  in  the  sale,  lease,  and  use 
of  such  machines,  defendants,  for  the  purpose  of  preventing  such 
competition  and  to  monopolize  trade  and  commerce  in machin- 
ery, on  or  about  September  23,   1910,  entered  into  agreements 

with  said  whereby  they  acquired  all  the  inventions,  letters 

patent  of  the  United  States  and  of  all  foreign  countries  relating 
thereto,   together  with  all   machinery,   mechanisms,   tools,   and 

devices  owned  and  controlled  by  said ,  designed  and  adapted 

for  use  in  the  manufacture  of  and  ;  and  defendants 

acquired  also  the  holdings  of  the  capital  stock,  which  constituted 
a  majority  thereof,  which  the  said owned  and  controlled  in 


Trust  Methods  315 

said  G.  Company.     The  issued  capital  stock  of  said 

G. Company  is  $3,750,000,  of  which  defendants  acquired 

$2,250,000.  For  the  inventions,  improvements,  letters  patent  of 
the  United  States  and  foreign  countries,  machines,  machinery, 
mechanisms,  and  devices  designed  and  used  in  the  manufacture  of 

and  ,  including  the  $2,250,000  of  capital  stock  of  said 

G. Company,  defendants  paid G. $6,000,000, 

part  in  cash  and  part  in  stock  of  defendant  corporations. 

For  the  purpose  of  maintaining  their  monopoly,  defendants  re- 
quired and  took  from  said covenants,  in  substance,  that  he 

should  assign,  transfer,  set  over,  and  deliver  to  defendants  all  inven- 
tions, improvements,  letters  patent  of  the  United  States  and  of 
foreign  countries,  applications  for  letters  patent,  and  interest  and 
rights  therein,  which  he  might  make,  own,  or  acquire,  within  15 

years  thereafter,  relating  to  the  manufacture  of  and , 

or  to  machinery,  mechanisms,  tools,  or  devices,  processes,  methods, 

or  things  intended  or  adapted  for  use  in  the  manufacture  of , 

or  in  the  working  or  manipulation  of  leather,  or  relating  to or 

of  any  description  whatsoever,  or  to  the  manufacture 

thereof,  together  with  any  and  all  rights  which  the  said might, 

within  said  period,  by  agreement  or  otherwise,  acquire  or  take 
over,  covering  any  such  inventions,  improvements,  letters  patent 
of  the  United  States  and  of  other  countries,  applications  for  letters 
patent,  and  interest  and  rights  therein. 

Exhibit  2 
company  * 


The  Government  alleges  that: 

In  December,  1902, I. and  certain  other  persons  were 

engaged  in  the  promotion  of  a  corporation  which  they  intended 

should  erect  a factory  at  .Menominee,  Michigan,  and 

manufacture ,  and  were  engaged  in  making  contracts 

with  farmers  for to  be  delivered  to  said  company;  and 

they  intended  that  said  company  should  engage  independently  in 

interstate  trade  and  commerce  in .    The 

Company,   to   prevent   this  proposed   competition,   entered   into 

1  United  States  of  America  v. Company  and  others.     Origi- 
nal Petition,  In  the Court  of  the  United  States  for  the District  of 

,  pp.  111-112. 


316  Industrial  Combinations  and  Trusts 

negotiations  with  said  which  resulted  in  its  subscribing  for 

30,000  shares  of  the  capital  stock  of  said  proposed  company,  and 

in  December,  1902,  The Company,  I.  , 

and B. caused  defendant Company  to  be 

incorporated,  and  thereupon  The Company  pur- 
chased 30,000  shares  of  its  capital  stock,  which  it  has  held  and 
voted  ever  since,  and  through  such  stock  has,  in  conjunction  with 
said ,  dominated  and  controlled  said  company. 

Exhibit  3 

general  electric  company1 

The  Government  alleges  that: 

On  February  10,  1906,  and  thereafter,  from  time  to  time,  con- 
tracts were  entered  into  between  the  Siemens  &  Halske  Aktienge- 
sellschaft,  of  Berlin,  Germany,  as  vendor,  and  defendants,  General 
Electric  Company  and  National  Electric  Lamp  Company,  as  the 
lamp  companies,  whereby  said  defendant  lamp  companies  acquired 
the  exclusive  right  to  manufacture,  use,  and  sell  throughout  the 
United  States,  its  territories,  possessions,  and  dependencies, 
"tantalum  filament"  incandescent  electric  lamps  (excluding  the 
manufacture  of  filaments  therefor)  under  the  patents,  applications, 
and  inventions  of  the  said  vendor,  said  defendant  lamp  companies 
in  consideration  therefor  making  a  cash  payment  of  $250,000  (60 
per  cent  of  which  said  sum  was  paid  by  defendant,  General  Electric 
Company,  and  40  per  cent  by  defendant,  National  Electric  Lamp 
Company)  and  giving  a  certain  share  of  the  profits  on  "tantalum 
filament"  lamps  sold  by  said  defendants  in  the  United  States,  and 
buying  from  said  Siemens  Company  all  "tantalum  filaments" 
required  by  said  defendants  in  the  manufacture  of  all  said  lamps 
so  sold. 

On  August  17,  1906,  defendant,  General  Electric  Company  made 
an  agreement  with  the  Deutsche  Gasgluhlicht  Aktiengesellschaft 
(Auer  Gesellschaft)  of  Berlin,  Germany,  whereby  it,  said  General 
Electric  Company,  secured  an  option  from  the  said  Auer  Company 
covering  the  exclusive  rights  for  the  United  States  to  the  "tungsten 
filament"   lamp,   hereinbefore  described,   that  might   follow  the 

1  United  States  of  America  v.  General  Electric  Company  and  others.  In 
the  Circuit  Court  of  the  United  States  for  the  Northern  District  of  Ohio,  In 
Equity,  pp.  27-30. 


Trust  Methods  317 

applications  and  inventions,  controlled  by  the  said  Auer  Company, 
for  a  consideration  of  $100,000  in  cash  and  certain  per  lamp  pay- 
ments on  account  of  such  lamps  as  should  thereafter  be  manufac- 
tured and  sold  by  it  in  the  United  States.  The  defendant,  General 
Electric  Company,  thereupon  sold  to  defendant,  National  Electric 
Lamp  Company,  a  40  per  cent  undivided  interest  in  said  option 
on  said  applications  and  inventions  so  controlled  by  the  said  Auer 
Company. 

On  April  19,  igog,  defendant,  General  Electric  Company,  secured 
an  option  on  the  United  States  patents,  applications,  and  inventions, 
owned  and  controlled  on  and  before  April  18,  1909,  and  thereafter 
to  be  owned  and  controlled  at  any  time  from  said  date  to  July  1, 
1919,  by  Bergmann  Elektricitats-Werke  A.  G.  of  Berlin,  Germany, 
and  Mr.  Sigmund  Bergmann,  of  Berlin,  Germany,  in  or  relating 
to,  or  to  the  manufacture  of,  incandescent  electric  lamps  and  fila- 
ments of  whatever  character,  also  the  processes  and  machinery 
therefor,  and  other  products,  of  the  said  Bergmann  Company's 
or  Mr.  Sigmund  Bergmann's  incandescent  Lamp  factories.  This 
option  was  exercised  on  May  10,  1909,  and  payments  in  considera- 
tion therefor  aggregating  $175,000  were  made  by  defendant,  General 
Electric  Company;  and  the  Bergmann  Company  and  Mr.  Sigmund 
Bergmann  agreed  to  and  did  cease  selling  and  delivering  incandes- 
cent electric  lamps  to  the  United  States  and  its  possessions  from  and 
after  May  10,  1909,  and  guaranteed  that  the  number  of  such  lamps 
sold  and  delivered  in  the  United  States  and  possessions  prior  to 
May  10,  1909,  and  subsequent  to  April  19,  1909,  should  not  exceed 
200,000  lamps.  At  a  later  date,  the  exact  date  being  to  your 
petitioners  unknown,  defendant,  National  Electric  Lamp  Company, 
purchased  a  four-tenths  undivided  interest  in  the  rights  under  this 
contract.  This  contract  covered  "tungsten  filament"  lamps  and 
incandescent  electric  lamps  of  every  character. 

The  defendants,  General  Electric  Company  and  National  Elec- 
tric Lamp  Company,  having  acquired  the  rights  under  the  ap- 
plications and  inventions  of  the  said  Auer  Company  and  said 
Bergmann  Company,  thereupon  proceeded  to  buy  the  applications 
and  inventions  of  Internationale  Wolfram  Lampen  Actiengesell- 
schaft  (Just  &  Hanaman),  Budapest,  Hungaria,  and  Dr.  Hanz 
Kuzel,  of  Baden,  Vienna,  Austria,  and  did  on  August  15,  1909,  by 
contracts  with  the  said  Just  &  Hanaman  and  Kuzel,  buy  their  said 
applications  and  inventions  covering  the  "  tungsten  filament " 
lamp  and  secure  control  thereof  for  a  consideration  of  $250,000  for 


318  Industrial  Combinations  and  Trusts 

the  Just  &  Hanaman  applications  and  inventions  and  $240,000  for 
the  Kuzel  applications  and  inventions.  The  aforesaid  applications 
and  inventions  and  patents  covering  the  "tungsten  filament" 
lamp,  which  were  acquired,  as  aforesaid,  by  defendants,  General 
Electric  Company  and  National  Electric  Lamp  Company,  com- 
prised all  the  valuable  applications  and  inventions  covering  said 
"tungsten  filament"  lamp  known  by  said  defendants. 

Exhibit  4 

1 


COMPANY 

The  Government  alleges  that: 

The  defendant, ,  and  the  other  directors,  officers, 

and  agents  of  the  said  successive  corporations,  from  time  to  time, 
during  the  above-named  period,  pursued  the  policy  of  acquiring 

new  inventions  for  the  purpose  of  eliminating  such 

competition  in  its  infancy  and  preventing  prospective  manufac- 
turers from  engaging  in  the  manufacture  and  sale  of ;  and 

said  officers  and  directors  and  their  agents,  by  intimidation,  threats, 
and  other  means  of  duress,  sought  to  prevent  and  did  prevent  other 
inventors  from  putting  their  inventions  on  the  market,  and  by  such 
wrongful  and  illegal  acts  prevented  the  organization  and  formation 
of  competing  concerns  and  hindered  and  prevented  other  persons, 

firms,  and  corporations  from  engaging  in  the business, 

and  did  thereby  deprive  the  public  of  the  benefit  of  such  competi- 
tion. 

GROUP  2 

Exhibit  i 

company2 


The  Government  alleges  that: 

The  defendant, ,  and  the  other  directors,  mana- 
gers, officers,  and  agents  of  the  said  successive  corporations  have, 
from  time  to  time,  during  said  above-named  period  caused  to 
be  purchased  and   have  purchased   competing  com- 

1  United  States  of  America  v.  The  — ■ Company.     Petition,  In 

Equity,  No.  6802,  In  the ■  Court  of  the  United  States    for  the Ju- 
dicial District  of ,  Western  Division,  p.  22. 

2  Op.  cit.  U .  S.  v. Company.    Petition,  pp.  20-21. 


Trust  Methods  319 

parries,  but  concealed  the  fact  of  such  purchase  and  caused  the 
same  to  be  continued  in  business  after  such  acquisition  in  pretended 
competition  with  the  defendant  company  as  independent  com- 
panies, for  the  purpose  of  interfering  with  other  manufacturers, 
dealers,  and  agents.  Said  directors,  managers,  and  officers  have 
employed  special  agents  who  were  instructed  and  directed  to  falsely 
and  fraudulently  represent  themselves  to  be  engaged  in  the  busi- 
ness of  dealing  in independent  of  and  in  competition 

with  said  successive  corporations,  for  the  purpose  of  deceiving 
such  competitors,  and  of  wrongfully  acquiring  information  con- 
cerning their  business.  Said  agents  thereupon  carried  out  such 
instructions  and  directions,  and  by  means  of  such  false  representa- 
tions the  said  successive  corporations  did  obtain  valuable  informa- 
tion relative  to  the  business  and  financial  affairs  of  such  competi- 
tors. Through  the  activity  of  such  special  men  and  by  means  of 
such  false  representations  the  said  successive  corporations  did  ob- 
tain valuable  information  concerning  such  competitors  which  en- 
abled such  corporations  to  greatly  injure  them  in  their  business, 
as  a  result  of  which  such  special  men  were  enabled  to  and  did  nego- 
tiate with  various  manufacturers,  dealers,  and  agents  for  the  pur- 
chase of  their  property  and  business,  and  did  by  means  of  such  unlaw- 
ful methods  succeed  in  purchasing  the  property  and  business  thereof, 
and  thereby  did  eliminate,  suppress,  and  destroy  such  competition. 

Exhibit  2 
company  x 


L.   ,  PEDDLER,  ONEONTA,  N.  Y.,AND  TROY,  N.  Y. 

ONEONTA,  N.  Y. 

The  Government  alleges  that: 

D F.  G ,  who  testified  as  a  witness  for  the  Government, 

decribed  in  detail  the  remarkable  operations  which  he  carried  out. 

under  the  instruction  of  T officials.     (Vol.  5,  pp.  2433-50.) 

His  testimony  is  corroborated  by  correspondence  and  is  in  no  way 
contradicted  or  explained  by  any  witness  for  the  defendants. 

G ,  who  had  previously  been  a  driver  for  the 

1 Company  of v.  United  Slates  of  America.       Brief 

for  the  United  States,  In  Court  of  the  United  States,  Vol.  2.,  pp.  523- 

S25,  529-530,  533-534,  538-539,  542-545,  553-554,  580-582. 


320  Industrial  Combinations  and  Trusts 

Company,  was  approached  at  his  home  at  night  about 


March,  1899,  by  U I  C ,  the  T 's  agent  at  Troy,  N.  Y., 

who  informed  him  thatN ,  theT 's  manager  at  Albany,  had 

some  important  work  for  him  to  do  which  must  be  kept  entirely 

secret,  even  from  G 's  own  family.    At  his  instance  G met 

H and  also  0 ,  manager  for  the  T at  Binghamton,  N.  Y. 

They  told  him  that  the  T had  competition  at  Oneonta,  N.  Y., 

from  the  U Company,  which  had  got  the  bulk  of  the  trade, 

and  that  they  wanted  to  get  it  back;  that  for  that  purpose  they 
wanted  to  get  the  storekeepers  to  fighting  with  one  another.    He 

was  directed  to  go  to  the  U Company  at  Binghamton, 

N.  Y.,  and  buy  25  barrels  of  oil  and  have  it  shipped  to  Worcester, 
from  which  place  he  was  to  reship  it  to  Oneonta.    The  reason  for 

this  procedure  was  that  if  the  U Company  knew  that  he 

wanted  to  sell  oil  at  Oneonta,  where  it  was  already  doing  business, 
it  would  not  supply  him.     They  directed  him  to  sell  this  oil  at 

Oneonta  to  consumers,  putting    the    sign    "U oil"  on  his 

wagon,  and  to  sell  it  at  8  cents  a  gallon,  which  was  the  same  price 
he  had  to  pay  the  U for  it  at  Binghamton. 

H and  O told  G that  he  must  not  tell  anyone  for 

whom  he  was  working,  but  must  say  that  he  was  working  for 
himself,  and  they  suggested  a  false  excuse  which  he  might  give  the 

manager  of  the  U Company  when  purchasing  this  oil. 

He  was  also  directed  how  he  should  conduct  correspondence  with 
O . 

G followed  out   these  instructions;  put  a  wagon  on  the 

streets  at  Oneonta  with  a  sign,  "U "  upon  it,  and  sold  the 

oil  to  consumers  at  8  cents  a  gallon,  which  was  the  same  as  the 
wholesale  price  to  retail  dealers.  The  retail  storekeepers  had  been 
selling  at  10  cents  a  gallon.  The  result  of  the  cut  which  he  made 
was  that  the  merchants  got  to  cutting  prices  against  him  and  then 
against  one  another,  and  finally  sold  oil  at  2  cents  a  gallon,  and  one 
put  out  a  sign,  "Free  oil;  come  and  get  your  cans  filled." 

G bought  one  other  lot  of  oil,  15  barrels,  from  the  U ,  but 

later,  being  unable  to  get  any  more  U oil  under  instructions 

he  got  his  oil  directly  from  the  T Company,  though  it 

was  shipped  in  blank-head  barrels,  which  were  dark  in  color,  while 

the  T 's  barrels  were  green.    After  this  he  did  not  display  the 

sign  "U oil." 

He  was  instructed  by  O not  to  try  to  sell  too  much  oil,  as, 

of  course,  a  loss  was  involved  on  every  gallon  sold.    The  object,  as 


Trust  Methods  321 

shown  by  the  correspondence  put  in  evidence,  was  to  get  and  keep 
the  storekeepers  in  conflict  with  one  another  on  price  cutting. 


COMPANY. 


C.  H.  N ,  who  was  employed  in  the  office  of  the  T at 

Baltimore  as  stenographer  and  later  as  assistant  to  the  manager, 

testified  that  in  1897  and  1898  C operated  the  F 

Company  at  Norfolk,  Va.,  and  elsewhere,  as  a  bogus  independent 

concern;  that  this  company  obtained  its  oil  from  the  T ,  but 

held  itself  out  to  be  independent,  and  its  effort  was  to  turn  the 

business  of  real  independents  into  T channels.    The  oil  was 

shipped  to  C in  blank-head  barrels,  that  is,  barrels  with  no 

name  upon  them,  while  the  practice  of  the  T was  to  place 

its  name  plainly  upon  all  barrels  to  its  regular  trade.      N says 

that  C cut  prices  against  the  independent  concerns  and  secured 

a  large  proportion  of  their  business.     (N ,  vol.  — ,  pp.  2360-62.) 

D.  H.  G ,  who  was  the  agent  of  the  T Company 

at  Norfolk  at  this  time,  testified  regarding  the  circumstances  under 

which  the  F Company  started  in  business  at  Norfolk. 

(Vol.  — ,  pp.  2211-12.)    He  said  that  there  was  at  Norfolk  at  this 

time  a  peddler  named  K selling  oil  to  consumers,  that  the 

business  had  become  of  considerable  importance,  and  that  K 

bought  his  supplies  partly  from  the  T .    F.  E.  Q ,  who  was 

in  charge  of  the  refined  oil  department  of  the  Baltimore  division, 
told  G that  it  was  important  not  to  let  even  their  own  cus- 
tomers get  too  large,  and  at  his  instance  G tried  to  buy  out 

K ,  but  could  not  do  so.     G says  that  Q thereupon 

sent  C to  Norfolk  to  operate  in  the  name  of  the  F 

Company;  that  he  was  instructed  to  visit  only  K 's  trade  and 

not  to  visit  the  T 's  customers,  and  that  he  carried  out  these 

instructions.    He  said  that  C failed  to  destroy  K 's  trade 

in  this  way  and  then  made  an  offer  for  his  business  and  bought  him 
out,  and  continued  to  operate  for  some  time  as  the  F Com- 
pany. 

B COMPANY. 

About  1897  the  T Company  bought  out  the  B 

Company,  which  had  a  refinery  at  Marietta,  Ohio.     (Vol. 

— ,  p.  3337-)    The  refinery  was  closed;  but  it  was  doubtless  because 

of  its  reputation  as  an  independent  establishment  that  the  T 

soon  after  selected,  the  name  "B Refining  Company"  under 


322  Industrial  Combinations  and  Trusts 

which  to  do  a  bogus  independent  business  at  Richmond,  Va. 
There  appears  to  be  no  practical  connection  between  the  two  con- 
cerns.    (Vol.  — ,  pp.  2537-41.) 

C testified    (vol.   — ,  2445-47)  that  in  the  latter  part  of 

1898,  under  the  direction  of  Q ,  of  the  Baltimore  office,  he  went 

to  Richmond  to  investigate  the  conditions  there.  He  found  that 
the  special  agent  of  the  T ,  Mr.  X ,  had  caused  dissatisfac- 
tion in  the  trade  by  employing  colored  drivers  and  by  refusing  to 
sell  in  less  than  20-gallon  lots  (note  that  this  is  just  what  he  says 

G did  at  Norfolk),  and  as  a  result  of  his  prejudice  the  V 

Company,  an  independent  concern,  was  doing  "a  right  smart 


business."     Q directed  him  to  go  to  Richmond  and  operate 

under  the  name  of  the  B Refining  Company,  for  the  purpose, 

C claimed,  of  waking  up  X and  teaching  him  how  to  get 

the  business.    He  admitted  that  after  he  had  been  operating  the 

B Refining  Company  for  some  time  the  V did  not  have 

very  much  trade,  and  that  the  B had  worked  up  a  good  business. 

In  August,  1899,  C ,  in  the  name  of  the  B ,  bought  out  the 

V Company,  with  money  furnished  by  the  T .    (Vol. 

— ,   pp.    2549-52.) 

W WORKS. 

Early  in  1901  C was  transferred  to  Baltimore,  and  operated 

there  under  the  name  of  the  W Works,  continuing  to  do 

so  until  1905.    This  concern  was  held  out  to  be  independent  of  the 

T .     C himself  admitted  that  his  prices  were  below  the 

T Company's  regular  market  prices  in  Baltimore.    (Vol. 

— ,  p.  2465.)    There  is  no  denial  that  the  W Company 

was  throughout  controlled  by  the  T . 

H ,  of  the  Red  " — "  Company,  testified  (vol.  — ,  pp. 

2320-1)  that  when  the  W started  into  business  C at- 
tempted to  hire  away  the wagon  drivers  of  the  Red  "  — "; 

that  the  W presented  to  customers  as  an  argument  to  show 

that  it  was  independent  the  fact  that  it  cut  the  T 's  prices,  and 

on  the  other  hand,  claimed  that  the  fact  that  the  real  independents 
did  not  cut  the  price  was  proof  that  they  were  controlled  by  the 

T .    C also  circulated  in  the  trade  the  false  report  that 

the  plants  of  the  T and  Red  "  —  "  companies  were  connected 

by  underground  pipes. 

N ,  who  was  then  in  the  office  of  the  T ,  stated  (vol.  — , 

pp.  2374-75)  that  the  T employed  men  to  follow  the  wagons 


Trust  Methods  $25 

of  the  independent  concerns  in  Baltimore,  especially  those  of  the 

D M Company,  and  get  lists  of  their  customers,  which 

were  turned  over  to  C . 

Mr.  Y ,  Baltimore  manager  of  the  D M Company, 

an  independent  concern,  testified  (vol.  — ,  pp.  71-2)  that  during 

1904  the  W attacked  the  D M Company's  trade, 

cutting  the  price  one-half  cent  a  gallon;  that  the  D M 

Company  had  to  meet  this  price,  whereupon  the  W went  down 

a  half  cent  farther,  and  so  on,  until  finally  the  W Com- 
pany was  selling  at  6  cents;  that  the  D M Company  did 

not  meet  this  price,  but  sold  at  7  cents,  and  that  the  T 

Company's  open  price  at  the  same  time  was  8  cents.    Y said 

that  he  then  went  to  the  customers  of  the  D M Company 

and  told  them  that  he  could  could  x  not  go  down  any  farther,  but 
promised  them  that  later,  when  the  price  would  advance  after  the 
fight  was  over,  he  would  make  them  a  reduction  on  the  then  current 
price  equal  to  that  which  C offered  during  the  fight. 

S. testified  that  he  was  employed  by  C to  work 

for  the  W Company  in  1904  and  1905,  driving  a  tank 

wagon;  that  C told  him  to  go  after  the  D M Com- 
pany's customers  and  offer  a  rebate  of  about  one-half  to  three- 
fourths  of  a  cent  below  the  T 's  market  price;  that  he  was 

instructed  not  to  sell  to  the  T 's  trade  except  at  the  regular 

market  price.  He  said  C told  him  that  the  W Com- 
pany was  not  controlled  by  the  T ,  but  that  he  showed  him  a 

list  of  D M Company's  customers  and  told  him  that  he 

should  not  go  to  any  trade  in  particular  except  that  of  D M 

Company.     (Vol.  — ,  pp.  193-4O 


WORKS. 


The  E Company  was  organized  as  a  corporation  by  the 

S.  P.  I Company  of  Savannah,  Ga.,  about  1897  or  1898.    The 

I Company  had  previously  been  engaged  exclusively  in  the 

naval  stores  business,  and  had  entered  the  petroleum  business 

because  the  T was  competing  with  it  in  naval  stores.     The 

E Company  did  business  at  Savannah,  New  Orleans, 

Mobile,  Birmingham,  and  elsewhere.     The  T ,  according  to 

the  testimony  of  E.  N.  T ,who  was  then  employed  by  the  T , 

cut  prices  heavily  against  the  E and  finally,  about  1899,  bought 

1  Thus  in  the  original. — Ed. 


324  Industrial  Combinations  and  Trusts 

it  out.    Its  name  was  changed  to  the  E Works,  and  it 

was  thereafter  run  by  the  T as  a  bogus  independent  concern, 

doing  business  in  numerous  places.     ( ,  vol.  — ,  pp.  2107-8; 

,  vol.  — ,  pp.  2279-80.) 

In  the  territory  of  the  Baltimore  marketing  division  of  the  T- 


which  covers  the  South  Atlantic  States,  the  E Works  was 

operated  under  the  supervision  of  C.  W.  C .    C.  H.  N who 

was  in  the  Baltimore  office  of  the  T up  to  about  1903,  testified 

that  the  accounts  of  the  E were  kept  in  the  books  of  the  T 

in  the  name  of  C.  W.  C ,  agent;  that  C reported  to  the 

T Company;  that  about  1901  he  began  to  extend  the 

business  to  towns  in  the  Carolinas,  Virginia,  and  Maryland;  that 

the  E made  a  special  effort  at  all  competitive  points  to  get 

business  away  from  independent  concerns;  that  it  gave  special 
commissions  to  distributing  agents  who  had  formerly  handled 
independent  goods,  to  get  them  to  become  its  agents,  and  that  it 
cut   prices. 

N also  said  that  while  special  efforts  were  made  by  the  E 

to  get  trade  from  the  independent  companies,  now  and  then,  for 

effect  only,  it  would  take  a  customer  from  the  T .     (Vol.  — , 

pp.  2363-4.) 

W.  H.  H ,  manager  of  the  Red  "  —  "  Company,  gave  similar 

testimony.    He  said  that  the  E took  away  from  the  Red  " — " 

its  agent  at  Columbia,  S.  C,  Marion,  N.  C,  Newton,  N.  C,  Char- 
lottesville, Va.,  and  Silver  Spring,  Md.;  that  it  cut  prices  to  take 
away  the  business  from  the  Red  " — ,"  and  after  it  had  secured  the 
business  it  so  managed  matters  as  ultimately  to  turn  it  over  to  the 

T Company;  and  that  it  at  all  times  held  itself  out  to  be 

independent.     (Vol.  — ,  pp.   2317-19.) 

The  evidence  shows  clearly  that  the  E was  used  particularly 

to  get  trade  from  the  independent  concerns.    H.  L.  S ,  manager 

of  the  P Company,  of  Norfolk,  Va.,  an  independent 

concern,  testified  that  his  company  was  attacked  by  the  T ,  first 

through  the  O Delivery  (hereafter  referred  to), 

which  sold  to  consumers,  and  soon  after  also  by  the  E 

Works,  which  solicited  the  trade  of  retail  dealers;  that  the  E 

avoided  the  customers  of  the  T and  solicited  only  the  dealers 

who  bought  from  the  P— ;  that  it  cut  the  prices,  and  in  some 


Trust  Methods  325 

cases  would  offer  5  gallons  of  —  free  on  a  purchase  of  25  gallons; 

that  the  E tried  to  hire  the  drivers  of  the  P Company 

regardless  of  salary,  telling  them  that  a  position  with  the  E 

would  be  more  permanent  as  the  P would  soon  be  off  the  streets; 

and  that  the  E cut  the  price  of against  the  P 

as  much  as  33-%  per  cent.  .  .  : 

R 'S  COMPANY,  ATLANTA,  GA. 

E.  N.  J testified  that  for  some  time  prior  to  1898  the  L 

Company  and  the  R 's Company  were  independent 

concerns  doing  business  at  Atlanta;  that  the  T so  reduced  the 

prices  of that  there  was  no  profit;  and  that  the  L and  the 

R 's  companies  were  forced  to  sell  out  to  the  T ,  which 

thereafter  operated  the  business  under  the  name  of  the  R 's 

Company  as  a  bogus  independent  concern.    (Vol.  — ,  pp.  2094-99.) 

After  the  R 's company1  became  a  bogus  independent 

concern  under  the  control  of  the  T ,  J was  put  in  charge 

of  it.     He  testified  (vol.  — ,  pp.  2099-2103)  that  he  reported  to 

E.  C.  M ,  cashier  in  the  main  office  of  the  T of ,  at 

Cincinnati,  Ohio;  that  these  letters  were  sent  to  a  post-office  box 

which  was  not  the  regular  box  of  the  T Company;  and 

that  under  instructions  he  held  the  R 's  out  to  the  trade  as  an 

independent  company. 

BOGUS  PEDDLING  CONCERNS  AT  CLEVELAND. 

C.  J.  D testified  (vol.  — ,  pp.  3054-56)  that  about  1902,  at 

which  time  he  was  in   the  independent   business  at  Cleveland, 

the  T operated  some  peddling  wagons  in  Cleveland  known  as 

Z Line  wagons,  which  were  managed  by  a  man  named  A , 

holding  himself  out  as  independent,  and  which  sought  the  trade 
of  peddlers  who  were  purchasing  independent  oil. 

The  reason  why  the  peddling  outfits  were  started  by  the  T- 


at  Cleveland  is  evidently  the  fact,  testified  to  by  Castle  (vol.  — , 
pp.  3054, 3056),  that  there  had  been  a  very  large  number  of  peddlers 
operating  in  Cleveland,  and  the  fact  that  there  was  a  large  volume 
of  independent  business  there.  Castle  stated  that  as  a  result  of 
the  competition  of  the  J Delivery  and  the  Z Line 

1  Thus  in  the  original. — Ed. 


326  Industrial  Combinations  and  Trusts 

wagons  which  preceded  it,  the  number  of  peddlers  was  reduced 

from  about  250  to  about  50.    K seeks  to  explain  the  decline 

in  the  number  of  peddlers  by  the  increasing  consumption  of  natural 
gas  at  Cleveland  (vol.  — ,  pp.  1531-32)  and  gives  some  statistics 
of  the  number  of  natural  gas  meters  in  use;  but  he  fails  to  give  the 
only  statistics  which  would  really  be  significant,  namely,  the  quan- 
tity of sold,  of  which  he  must  have  a  very  accurate  record  both 

for  the  T 's  sales  and  for  those  of  independent  concerns. 


Exhibit  3 
e.  i.  du  pont  de  nemours  powder  company  > 

"  Q.  Do  you  know  of  the  employment  of  a  yellow  dog  company? 

A.  I  have  been  told  that  the  Climax  Co.,  and  the  New  York 
Powder  Co. — 

Q.  What  do  you  know  about  the  yellow  dog  companies,  if  any- 
thing? 

A.  May  I  ask  a  question? 

Q.  Yes. 

A.  If  the  president  of  the  company  told  me,  am  I  permitted  to 
answer? 

Q.  Yes.  That  is  my  judgment,  unless  the  gentlemen  differ  with 
me. 

A.  During  the  conversation  with  Mr.  T.  C.  du  Pont,  the  presi- 
dent, in  which  he  was  endeavoring  to  explain  to  me  the  objects  of 
the  trust,  he  told  me  that  no  one  man  could  sell  all  the  powder,  or 
any  other  article,  in  any  particular  territory,  and  it  was  necessary 
for  him,  therefore,  just  like  a  little  boy,  to  have  a  dog,  to  which  he 
could  whistle  and  call. 

Q.  What  kind  of  a  dog? 

A.  He  termed  it  "a  yellow  dog,"  and  he  explained  to  me  that 
after  I  had  exhausted  all  my  resources,  and  those  of  the  traveling 
men  under  my  office,  that  if  I  was  not  able  to  regain  the  trade,  that 
I  was  to  whistle  by  writing  a  letter,  and  they  would  then  send  on  a 
little  yellow  dog,  which,  at  that  time,  in  the  high  explosives  busi- 
ness, was  known  as  the  Climax  Powder  Manufacturing  Co.,  of  Em- 

1  Testimony  of  F.  J.  Waddell.  United  Slates  of  America  v.  E.  I.  du  Pont  da 
Nemours  and  Company,  In  Circuit  Court  of  the  United  Staled  fur  the  District 
of  Delaware.    Pet.  Rec.  Testimony,  Vol.  II,  pp.  685-687. 


Trust  Methods  527 

porium,  and  the  New  York  Powder  Co.,  of  New  York.  But  the 
trouble  was  to  keep  the  little  yellow  dog  away  from  the  trade  that 
was  not  molested : 

Q.  Had  you  occasion  to  whistle  for  the  little  yellow  dog? 

A.  Yes,  sir. 

Q.  Did  you  do  so? 

A.  Yes,  sir. 

Q.  What  occurred.1    State  what  you  did? 

A.  If  we  met  the  prices,  that  meant  the  lowering  of  our  prices 
on  our  brands;  but  the  little  yellow  dog  would  come  in,  and  we 
would  say  that  we  didn't  recognize  them  at  all,  that  their  goods 
were  of  no  account,  and  were  of  low  grade,  and  all  that  kind  of 
thing;  so  we  didn't  have  to  lower  our  prices  to  the  adjoining  trade; 
but  the  yellow  dog  got  the  business. 

Q.  Would  you  sell  for  the  yellow  dog? 

A.  No,  sir. 

Q.  To  whom  did  they  belong  to,  if  you  know,  that  is,  the  Climax 
Powder  Co.,  and  the  New  York  Co.? 

A.  To  the  trust. 

Q.  To  the  trust? 

A.  Yes,  sir. 

Q.  Was  that  the  E.  I.  du  Pont  de  Nemours  Powder  Co.? 

A.  Yes,  sir. " 

Exhibit  4 

american  tobacco  company  2 

The  most  important  motive,  however,  for  the  continuance  of 
separate  corporate  existence  in  the  case  of  many  concerns  has  been 
the  desire  of  the  Combination  to  keep  its  control  secret.  There  is  a 
strong  feeling  among  many  dealers  and  consumers  against  "  trusts" 
in  general  and  the  "Tobacco  Trust"  in  particular.  Independent 
manufacturers  have  extensively  taken  advantage  of  this  feeling 
and  have  advertised  their  goods  as  "Independent,"  "Not  made 
by  a  trust,"  and  so  forth.  The  attitude  of  the  American  Tobacco 
Company  and  its  openly  affiliated  concerns  in  refusing  to  deal 
with  labor  organizations  has  also  caused  hostility  among  union 
laboring  men,  many  of  whom  insist  on  buying  "union-label" 

1  Thus  in  the  original. — Ed. 

2  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry, 
Part  I,  pp.  20-21. 


328  Industrial  Combinations  and  Trusts 

goods.  Many  independent  manufacturers  have  availed  themselves 
of  the  union-label  sentiment  to  build  up  a  trade. 

In  order  to  overcome  the  effects  of  the  antitrust  sentiment  and 
the  union-label  sentiment,  and  even  to  take  advantage  of  them, 
the  Tobacco  Combination,  particularly  during  1903  and  1904, 
secretly  acquired  a  controlling  interest  in  numerous  concerns 
which  had  been  catering  to  customers  who  held  those  sentiments. 
Such  concerns  continued  to  operate  under  their  former  management 
and  kept  up  a  pretense  of  independence  and  of  hostility  to  the 
Combination.  Those  which  employed  union  labor  continued  to  do 
so  and  advertised  the  union  label.  These  secretly  controlled  con- 
cerns were,  until  the  facts  were  disclosed  by  the  Government,  a 
powerful  engine  of  warfare  against  the  genuine  independents  and 
were  looked  upon  by  the  latter  as  their  worst  enemy. 

Among  the  concerns  of  which  control  was  thus  secretly  acquired 
and  for  a  greater  or  less  period  secretly  maintained  by  the  American 
and  Continental  tobacco  companies  are  the  following: 

R.  A.  Patterson  Tobacco  Company,  Richmond,  Va. 

H.  N.  Martin  &  Co.,  Louisville,  Ky. 

Queen  City  Tobacco  Company,  Cincinnati,  Ohio. 

Pinkerton  Tobacco  Company,  Zanesville,  Ohio. 

F.  F.  Adams  Tobacco  Company,  Milwaukee,  Wis. 

Nail  &  Williams  Tobacco  Company,  Louisville,  Ky. 

Nashville  Tobacco  Works,  Nashville,  Tenn. 

F.  R.  Penn  Tobacco  Company,  Reidsville,  N.  C. 

Wells-Whitehead  Tobacco  Company,  Wilson,  N.  C. 

H.  Bolander  (Incorporated),  Chicago,  111. 

D.  H.  Spencer  &  Sons  (Incorporated),  Martinsville,  Va. 

Manufacturers  Tobacco  Company,  Louisville,   Ky. 

Michigan  Tobacco  Company,  Detroit,  Mich. 

B.  Leidersdorf  &  Co.,  Milwaukee,  Wis. 

R.  P.  Richardson,  jr.,  &  Co.,  (Incorporated),  Reidsville, 

N.  C. 
Standard  Snuff  Company,  Nashville,  Tenn. 
Liipfert-Scales  Company,  Winston-Salem,  N.  C. 
Craft  Tobacco  Company,  New  Orleans,  La. 
Mellor  &  Rittenhouse  Philadelphia,  Pa.  (licorice). 
Johnston  Tin  Foil  and  Metal  Company,  St.  Louis,  Mo. 

(tin-foil) 
J.  S.  Young  Company,  Baltimore,  Md.  (licorice). 


Trust  Methods  329 

Exhibit  5 

international  harvester  company  ' 

The  Government  alleges  that: 

In  January,  1903,  in  pursuance  of  the  general  purpose  of  de- 
fendants, defendant,  International  Harvester  Company,  acquired, 
through  purchase  of  all  the  capital  stock,  of  and  subsequent  convey- 
ance from  D.  M.  Osborne  &  Co.,  a  New  York  corporation,  with  a 
plant  at  Auburn,  N.  Y.,  engaged  in  interstate  trade  and  commerce 
in  harvesting  machinery,  twine,  and  tillage  implements,  and  in 
manufacturing,  selling,  and  distributing  harvesting  machinery, 
twine,  and  tillage  implements  throughout  the;  United  States  in 
competition  with  it,  all  grantor's  business  of  manufacturing  and 
selling,  dealing  in  and  distributing  harvesting  machinery  and  twine 
as  a  going  concern,  all  assets,  property,  and  good  will  and  the  exclu- 
sive right  to  use  the  corporate  name,  paying  therefor  cash  and  five- 
year  notes.  The  principal  owners  of  the  grantor  company,  long 
successfully  engaged  in  manufacturing  and  selling  harvesting  ma- 
chinery, agreed  with  grantee  to  enter  its  service  for  a  certain  period 
in  managing  the  business  and  property  acquired  and  not  otherwise 
or  thereafter  to  engage  in  or  carry  on  or  become  interested  in  the 
business  of  manufacturing  or  dealing  in  harvesting  machinery. 

After  the  five  concerns  had  gone  into  the  International  Harvester 
Company,  the  Osborne  Company  remained  by  far  the  largest 
single  manufacturer  outside  the  combination. 

For  two  years  defendant,  International  Harvester  Company, 
concealed  and  denied  its  association  with  D.  M.  Osborne  &  Co., 
and  operated  the  latter  as  an  independent  company. 

GROUP  3 

Exhibit  i 

company  2 


The  Government  alleges  that: 
From  the  year  1890,  up  to  the  present  time,  the  said  defendant, 
—  —  ,  and  the  other  directors,  managers,  officers,  and 


1  United  States  of  America  v.  International  Harvester  Company  and  Others. 
Petition  in  Equity,  In  the  District  Court  of  the  United  States  for  the  District 
of  Minnesota,  pp.  25-27.  This  charge  is  admitted  in  Defendant's  Answer  to 
Petition,  pp.  30-31. 

2  Op.  cit.  U.  S.  v. Company.    Petition,  pp.  14-16. 


33°  Industrial  Combinations  and  Trusts 

agents  of  the  said  several  successive  corporations,  conspiring  and 
confederating  together,  have  maintained  a  department  of  each  and 
every  of  said  successive  corporations  for  the  purpose  of  stifling  and 
suppressing  competition  with  them  respectively.  This  department 
was  sometimes  called  the  "Competition  department,"  at  other 
times  the  "Ways  and  means  department,"  and  at  other  times  by 
various  other  names.  It  was  composed  of  an  active  head,  with 
other  officers  and  departmental  managers  of  the  said  several  cor- 
porations. It  employed  a  force  of  special  men  who  were  particu- 
larly instructed  and  directed  to  suppress  and  destroy  the  business  of 
competitors  engaged  in  interstate  and  foreign  trade  and  com- 
merce, and  to  harass  and  discourage  and  force  out  of  business 
such  competitors  who  were  either  manufacturers,  dealers,  or 
agents. 

These  special  men  were  generally  known  as  "knockout"  men,  and 
were  employed  for  the  special  purpose  of  interfering  with  the  negoti- 
ations of  the  contracts  of  sales  of  such  competitors.  The  said  de- 
partment also  employed  secret  agents  who  were  instructed  and  di- 
rected to  spy  upon  the  business  of  such  competitors,  to  fraudulently 
obtain  information  as  to  their  sales  and  shipments,  and  to  report 
such  information  to  said  department,  where  it  was  used  for  the  pur- 
pose of  discouraging  prospective  purchasers  of  other s. 

Other  secret  spies  and  agents  were  from  time  to  time  employed 
by  said  department,  with  instructions  to  report  the  names  of  cus- 
tomers of  such  competitors,  and  to  report  other  information,  which 
was  thereupon  used  by  said  department  in  blocking,  and  in  secur- 
ing the  rescinding,  of  contracts  of  sales  by  such  competitors,  and 
wrongfully  interfering  with  their  business. 

The  said  department,  from  time  to  time,  wrongfully  and  secretly 
engaged  the  services  of  the  employees  of  such  competitors  and  in- 
structed and  directed  them  to  furnish  to  said  department  confiden- 
tial information  concerning  the  business  of  such  competitors;  and 
such  information,  when  so  reported,  was  used  by  said  department 
in  unlawfully  and  fraudulently  obstructing  and  suppressing  such 
trade  and  commerce  of  such  competitors. 

Such  department,  from  time  to  time,  sent  out  instructions  to  the 
agents  of  the  said  several  successive  corporations,  advising  and 

directing  them  how  to  manipulate  competing ,  for  the 

purpose  of  showing  defects  and  for  the  purpose  of  discouraging 

users  of  such  ,  and  for  the  further  purpose  of  having  such 

users  rescind  their  contracts  of  purchase. 


Trust  Methods  331 

The  said  department  also,  from  time  to  time,  instructed  and 
directed  its  agents  to  purchase  information  from  agents  and  em- 
ployees of  competing  manufacturers  and  dealers  relative  to  the 
business,  plans,  and  customers  of  such  competitors,  and  to  pro- 
cure information  from  the  employees  of  railroads,  express  com- 
panies, hotel  companies,  and  others  as  to  the  plans  and  purposes  of 

competitors  and  the  shipments  of  their ,  and  to  report  such 

information  to  said  department,  where  it  was  used  in  obstruct- 
ing and  suppressing  such  trade  and  commerce. 

All  of  such  instructions  and  directions  as  above  set  forth  were 
acted  upon  by  such  agents  so  receiving  them,  and  the  policy  and 
plan  of  the  defendants  operating  said  successive  corporations 
through  said  department  was  by  such  agents  carried  out. 

Exhibit  2 

company  * 

The  Government  alleges  that: 

It  appears  from  the  evidence  that  the  T Company  has 

a  general  statistical  department  with  headquarters  at , 

one  of  the  chief  functions  of  which  is  to  keep  accurate  records  of  the 
volume  of  business  done  by  competitors,  and  that  the  information 
regarding  shipments  and  business  of  competitors,  secured  from 
railway  sources,  is  all  reported  ultimately  to  this  central  office. 
The  Government  had  much  difficulty  in  securing  from  the  officers 

of  the  T Company  an  admission  even  of  the  existence  of 

this  statistical  department  and  of  the  fact  that  such  records  of  the 
business  of  competitors  were  kept.    Two  or  three  witnesses  who 

had  charge  at  New  York  of  the  sales  of  the  various marketing 

companies  in  different  parts  of  the  country  admitted  after  much 
questioning  that,  from  the  central  offices  of  those  companies  in 
other  places,  reports  of  competitive  shipments  were  sent  to  them 
at  New  York;  but  they  at  first  denied  knowledge  as  to  what  became 

of  such  reports  after  they  had  once  examined  them.    ( ,  vol.  — , 

pp.  670  et  seq. ; ,  vol.  — ,  p.  681.)    Thus ,  who 

had  charge  of  the  sales  in  the territory  until  1900,  and 

later  had  charge  of  the  sales  in  the  territory  of  the Com- 
pany and  the  T of  Iowa,  admitted  receiving  such  reports  from 

all  these  territories,  but  claimed  that  they  were  destroyed  from  time 
to  time,  and  that  he  had  none  except  for  a  very  recent  period.    He 

1  Op.  cit.  U.  S.  v. Company.    for  U.  S.  Vol.  — ,  pp.  589-91. 


332  Industrial  Combinations  and  Trusts 

said  nothing  about  their  being  turned  over  to  the  statistical  depart- 
ment, as  subsequently  appeared  to  be  the  case.     ( ,  vol.  — , 

pp.  679-87.) 

Finally  it  was  learned  from  the  testimony  of ,  the 

selling  agent  at  New  York  for  the Company  of  Kentucky, 

that  the  reports  of  this  character  which  he  received  from  the 

of  Kentucky  were  turned  over  to ,  who  had  charge  of 

the  statistical  department  at (vol.  — ,  pp.  709-10.)    The 

Government  finally  found  that ,  under ,  was  then  in 

charge  of  this  statistical  department.  He  was  called  as  a  witness, 
and  admitted  that  such  reports  of  competitive  shipments  were 
turned  over  to  his  office,  and  that  from  them  he  compiled  general 
statistics  showing  the  volume  of  competitive  sales  in  each  general 

marketing  territory  of  the  T Company,  and  also  in  its 

smaller  subdivisions,  and  in  the  principal  towns  throughout  the 
United  States.    ( ,  vol.  — ,  pp.  829-32.) 

The  Government  secured  from  's  office,  and  introduced  in 

evidence,  copies  and  extracts  from  these  records  showing  the  vol- 
ume of  competitive  business.  (Petitioner's  Exhibits  387-90,  vol. — .) 
It  also  procured  from  the  various  sales  agents  having  their  head- 
quarters at namely, ,  representing  the of  Iowa 

and  the Company; ,  representing  the of  Ken- 
tucky;   ,  representing  the of  Indiana; ,  representing 

the Company;  and ,  representing  the of  New 

Jersey — the  current  reports  received  by  them  from  their  several 
companies  showing  individual  shipments  of  competitors,  and  also 
summaries  thereof  showing  the  total  competitive  business  for  cer- 
tain recent  periods  of  time.  Copies  and  extracts  of  some  of  these 
records  were  put  into  evidence,  and  constitute  Petitioner's  Exhibits 
313,  319,  329,  341,  342,  343,  344,  353,  354,  and  355  (vol.  — ).  To 
illustrate  the  form  of  these  reports  of  competitive  shipments,  we  call 
attention  to  Petitioner's  Exhibit  313  (vol.  — ,  p.  700),  which  is  a 

list  of  shipments  of  —  by  competitors  in  the  territory  of  the 

Company  (Rocky  Mountain  States)  during  certain  months 

of  1907.    The  first  column  (see ,  vol.  — ,  pp.  687,  739)  shows 

the  date  of  the  shipment;  the  second,  the  consignor;  the  third,  the 
point  of  origin;  the  fourth,  the  consignee;  the  fifth,  the  point  of 
destination;  and  the  other  columns  the  character  and  amount  of 
in  the  shipment. 

Petitioner's  Exhibits  387-390,  which  are  the  summarized  records 
produced  by ,  show  how  complete  is  the  system  of  keeping 


Trust  Methods  333 

track  of  competitive  business.  They  cover  every  marketing  terri- 
tory of  the  T Company  in  the  United  States,  showing  the 

volume  of  business  done  in  such  territory  by  the  T Com- 
pany the  volume  done  by  independent  concerns,  and  the  corre- 
sponding percentages.  They  also  give  similar  figures  for  the  smaller 
marketing  districts  in  which  the  larger  territories  are  divided,  and 
likewise  in  many  cases  give  separately  figures  for  the  main  stations 
and  for  the  substations  under  such  main  stations.  We  have  already, 
in  discussing  the  relation  of  the  extent  of  competition  to  the  prices 

charged  by  the  T Company,  presented  these  percentages 

of  competitive  business. 

and  other  sales  agents  who  produced  these  papers  testified 

that  they  did  not  know  how  this  information  regarding  competitive 
shipments,  which  came  to  them  from  the  head  offices  of  the  several 

companies,  was  originally  procured  by  those  offices.  ,  vol.  — , 

p.  671; ,  vol.  — ,  p.  687; ,  vol.  — ,  p.  709; ,  vol.  — , 

pp.  758,  759; ,  vol.  — ,  pp.  818-825.)    None  of  them  directly 

testified  that  they  knew  that  the  reports  did  not  come  originally 

from  railroad  employees,  though  said  he  had  been  assured 

they  did  not.  (Vol.  — ,  p.  687.)  In  the  Missouri  case  in  1906,  how- 
ever, C.  P. ,  general  manager  of  the Company, 

practically  admitted  that  that  company  got  such  information  from 
railroad  employees,  and  paid  for  it  (vol.  — ,  pp.  1109-11.) 

GROUP  4 
Exhibit  i 

EXPLOSIVES  TRADE  l 

Q.  I  will  ask  you  whether  or  not,  if  you  know,  there  was  any 
contest  inaugurated  against  the  King's  Great  Western  Powder  Co. 
by  the  associated  companies,  in  which  you  took  part  and  assisted? 

A.  I  was  sent  to  Cincinnati  by  The  Hazard  Powder  Co.  by  di- 
rection of  R.  L.  Wheeler,  the  president,  when  a  branch  office  was 
established,  and  he  told  me  the  chief  part  of  my  work  would  be  the 
conducting  of  a  fight  against  the  King's  Great  Western  Powder 
Co.  Mr.  Wheeler  was  then  vice  president,  and  not  president,  as 
I  have  just  stated. 

1  Op.  cit.  U.  S.  v.  E.  I.  du  Pont  de  Nemours  and  Company.  Testimony  of 
R.  S.  Waddell.  Pet.  Rec.  Testimony,  Vol.  I,  pp.  99  ff.  The  instance  given  here 
is  taken  from  the  period  when  the  explosives  trade  was  operating  under  a  pooling 
agreement  and  before  the  consolidation  into  the  present  combination. — Ed. 


334  Industrial  COMBINATIONS  and  Trusts 

Q.  What  did  you  do? 

A.  I  opened  an  office  at  Cincinnati.  The  price  of  rifle  powder 
was  then  held  at  $6.25  per  keg,  less  a  rebate,  or  discount,  to  city 
trade,  of  5  per  cent,  say  $5.94  net.  I  opened  the  fight  by  reducing 
the  price,  on  Mr.  Wheeler's  instructions,  to  $5.80.  I  made  as  much 
1  rade  as  I  could  at  that  figure. 

Q.  State  whether,  if  you  know,  The  Hazard  Powder  Co.  had  any 
trade  in  that  locality  at  that  time  at  all? 

A.  It  had  a  very  small  trade  throughout  that  section  of  the 
country. 

Q.  Who  made  the  first  cut  in  price,  if  you  know? 

A.  The  Hazard  Powder  Co.  That  was  on  rifle  powder.  There 
had  been  a  fight  in  progress  on  blasting  powder  before  that  time; 
but  the  King  Co.  had  only  recently  commenced  the  manufacture  of 
rifle  powder. 

Q.  Who  took  the  trade,  if  you  know,  on  that  price? 

A.  The  Hazard  Co.  took  the  most  of  the  trade  of  the  city;  the 
merchants. 

Q.  How  was  that  cut  met,  if  you  know,  by  the  King  people,  if 
at  all? 

A.  It  was  met,  within  a  day  or  two,  by  Mr.  John  King  himself, 
who  came  to  the  city  and  made  a  lower  price.  The  price  was  see- 
sawed between  us  at  about  10  cents  per  keg,  every  few  days,  until 
the  price  had  gotten  down  to  about  $3.75  or  $4,  when  I  was  called 
to  New  York. 

Q.  By  whom? 

A.  By  the  Hazard  Powder  Co.,  or  the  officers  of  The  Hazard 
Powder  Co.  for  a  conference. 

Q.  With  what  person  there  did  you  have  a  conference? 

A.  R.  L.  Wheeler,  who  was  the  acting  head  of  the  company, 
directing  the  business. 

Q.  State  what  that  conference  was? 

A.  We  discussed  the  situation  at  Cincinnati.  He  expressed  a 
desire  to  hold  the  trade,  even  though  the  price  might  go  very  much 
lower  than  we  were  then  making,  and  asked  my  opinion  as  to  the 
best  means  of  doing  this;  and  I  recommended  a  plan  that  I  thought 
would  be  effective. 

Q.  What,  if  anything,  were  you  instructed  to  do? 

A.  I  had  general  instructions  to  make  a  price  lower  than  any 
that  had  been  quoted  in  the  city,  to  the  city  trade  in  Cin- 
cinnati. 


Trust   Methods 


335 


Mr.  Graham:  Will  you  state  what  the  instructions  were,  instead 
of  saying  "I  had  general  instructions?" 

Q.  State  the  specific  instructions  received.  By  whom  were  they 
given? 

A.  R.  L.  Wheeler. 
By  Mr  Graham: 

Q.  What  did  he  say? 

A.  He  instructed  me  to  cut  the  price  still,  either  10  or  15  cents 
a  keg,  with  a  guarantee  to  each  customer  to  whom  I  gave  the  cut 
price  that  this  should  be  10  cents  per  keg  lower  than  any  price  the 
King  Powder  Co.  would  make  to  them;  and  when  the  King  Co. 
quoted  a  price  to  a  customer — 
By  Mr.  Scarlet: 

Q.  What,  if  anything,  was  done  under  that  instruction? 

A.  I  carried  them  out  exactly  as  they  were  given  to  me. 

Q.  How  low  did  the  price  go? 

A.  The  price,  to  the  greater  part  of  the  trade,  went  as  low  as 
$2.25  per  keg  on  rifle,  although  I  made  some  sales  at  $2.15  and 
$2.10. 

Q.  What  was  the  price  of  powder  outside  of  the  territory  in 
which  this  contest  was  going  on,  if  you  know? 

A.  In  the  New  England  States,  the  Eastern  Seaboard,  the 
extreme  Western  States,  the  full  list,  $6.25,  was  maintained  on 
rifle  powder.  -» 

Exhibit  2 

standard  oil  company  * 

Price  of  water-white  illuminating  oil  and  margins,  on  October  15, 
IQ04,  by  specified  towns  throughout  the  United  States.2 

(cents  per  gallon.) 
North  Atlantic  States. 


Price. 

Margin. 

Per  cent  of 
competition. 

Maine: 

Portland 

11.50 
11.00 

2-34 
2.14 

0 

New  Hampshire: 

Nashua 

4-7 

1  Op.  cit.  Standard  Oil  Company  v.  U.  S.    Brief  for  U.  S.  vol.  2,  pp.  432-436. 

2  Prices  that  indicate  loss  are  merely  printed  in  red  ink  in  original.     In  fol- 
lowing tables  minus  signs  are  used. — Ed. 


3o6 


Industrial  Combinations  and  Trusts 


(cents  pi:r  gallon.) 
North  Atlantic  States.— Continued. 


Vermont: 

Burlington  .  . 
Massachusetts: 

Boston 

Fall  River.  .  . 

Springfield  .  . 

Worcester.  .  . 
Connecticut: 

Hartford.  .  .  . 

New  London . 
Rhode  Island: 

Providence  .  . 
New  York: 

Binghamton. 

Buffalo 

New  York.  . . 
Pennsylvania: 

Harrisburg  .  . 

Philadelphia. 

Pittsburg.  .  . . 
Delaware: 

Wilmington  . 
New  Jersey: 

Newark 

Trenton 

Jersey  City. . 


Price. 

Margin. 

Per 

com 

<i  nl  if 
petition. 

10.00 

1-54 

1.0 

II.OO 

2.82 

"•3 

10.50 
8.00 
8.00 

2.15 

—.88 

.08 

0 

21.7 

50 

9.00 

10.00 

.18 
1.61 

21.7 
28.9 

10.00 

1. 21 

0 

9-5° 

10.00 
10.98 

1. 00 
2.01 
2.31 

39- l 

10.4 

8.6 

10.50 
8.00 
8.50 

2.47 
.28 
.87 

10.3 

ai?.6 

32.8 

8.50 

.27 

a6.5 

11.00 

9-5° 
10.94 

2.60 

■83 

2-59 

18.6 

aI2.4 

a7-5 

*  Includes  city  and  its  substations. 


(cents  per  gallon.) 
South  Atlantic  States. 


Price. 

Margin. 

Per  cent  of 

competition. 

Maryland  and  District  of  Columbia: 

Baltimore 

Frederick  

8.50 

10.00 

8.50 

9-5° 

8.00 

.09 

1.70 

.18 

.68 

a — .27 

16.5 

Washington,  D.  C 

Virginia: 

Norfolk 

29.6 
12.0 

Richmond 

a  Petitioner's  Exhibit  631  is  in  error  in  showing  this  as  a  profit.  The  exhibit 
from  the  records  of  the  Standard  Oil  Company,  petitioner's  Exhibit  391,  from 
which  Exhibit  631  was  compiled,  shows  it  as  a  loss. 


Trust  Methods 


337 


(cents  per  gallon.) 
South  Atlantic  States.— -Continued. 


Virginia: 

Roanoke  .  . 
West  Virginia: 

Charleston 

Wheeling.  . 
North  Carolina: 

Wilmington 

Raleigh  .  .  . 
South  Carolina: 

Columbia  . 
Georgia: 

Atlanta  .  . . 

Savannah  . 
Florida: 

Jacksonville 

Tampa. 


Price. 


11.50 

10.00 
9-5° 

11.00 
12.00 

13.00 

13.00 
12.50 

13.00 

14.50 


\r  .  .,-         Pcr   cent   °f 

^    '    competition. 


2.29 

2.56 
1.66 


1.99 
1.56 


3.10 
3-93 


o 
12.2 


o 
i-7 


3-9 


(cents  per  gallon.) 
North  Central  States. 


Ohio: 

Cincinnati.  .  . 

Cleveland  .  .  . 

Columbus.  .  . 
Indiana: 

Evansville.  .  . 

Indianapolis.  . 

South  Bend .  . 
Illinois: 

Chicago 

Decatur 

Joliet 

Michigan : 

Detroit 

Calumet  .... 

Grand  Rapids 
Wisconsin: 

La  Crosse  . .  . 

Milwaukee  .  . 

Eau  Claire  .  . 
Minnesota: 

Duluth   


Price. 


7.00 
7.00 
9-5° 

9.00 

8.50 

10.00 

8.50 

9-5° 
9.00 

8.50 

12.25 

9-5o 

9.00 
8.qo 


Margin. 


-1.09 
.16 

1.72 

•05 


1.90 

•56 
.08 

•73 

.24 
2.40 
1.14 

■17 

•65 
1.36 


Per  cent  of 
competition. 


8.m     I       —  .i 


45-3 
11.7 

2-3 

29.0 
22.0 

o 

12.7 
12.9 

18.5 

17.6 

o 

38.6 

38.6 


9.0 


338 


Industrial  Combinations  and  Trusts 


(cents  per  gallon.) 
North  Central  States. — Continued. 


Minnesota: 

Minneapolis 

Mankato 

Iowa: 

Clinton 

Cedar  Falls 

I  )es  Moines 

Missouri  (not  including  Waters-Pierce  Terri- 
tory): 

Kansas  City 

St.  Joseph 

Kansas: 

Leavenworth 

Fort  Scott 

Wichita 

Nebraska: 

Omaha 

Hastings 

Fremont 

North  Dakota: 

Fargo 

South  Dakota: 

Huron 

Sioux  Falls 


Price. 


9-5o 
11.50 

10.00 
12.25 
10.75 


10.00 
11.00 

10.50 
12.00 
10.00 

10.00 
13.00 
12.00 

!3-5° 

14.50 

12.00 


Margin. 


.24 
2.24 

•17 
2.10 

•53 


.27 
1-52 


.48 

.41 
1.49 
1-45 

2.10 

2.27 
•35 


Per   cent  of 
competition. 

41.8 
o 


41.8 


24.2 


32.1 
21.7 


(cents  per  gallon.) 
South  Central  States. 

(Exclusive  of  Waters-Pierce  territory.) 


Price 


Per  cent  of 
competition. 


Kentucky: 

Louisville  .  .  . 

Lexington.  .  . 

Paducah 
Tennessee: 

Chattanooga . 

Nashville 

Memphis.  .  .  . 
Alabama: 

Birmingham. 

Selma 

Huntsville.  .  . 


13.00 
12.00 
10.50 

13.00 
14.00 
T3-5° 


16.1 


o 
27.6 

11.6 


Trust  Methods 


339 


(cents  per  gallon.) 
South  Central  States. — Continued. 


Mississippi : 

Jackson 

Louisiana : 

New  Orleans . 

Baton  Rouge 


Price. 


i3-5o 


9-5o 
11.00 


,,       .       Per  cent  of 
Margin.    compctHioiu 


-1-35 

.21 


(cents  per  gallon.) 
Western  States. 


Montana: 

Butte 

Wyoming: 

Cheyenne  

Colorado : 

Denver 

Leadville 

New  Mexico: 

Albuquerque .  .  . 
Utah: 

Salt  Lake  City. 
Washington : 

Seattle 

Spokane  

Oregon: 

Portland 

California: 

Los  Angeles  . . . 

Oakland  

Sacramento 

San  Francisco .  . 


Price. 

Margin. 

23.00 

5-76 

18.00 

4-32 

16.00 
20.00 

3-39 

5-47 

23.00 

6.48 

20.00 

4.09 

15-5° 
21.50 

4.17 
6.10 

15.00 

4.12 

7-5o 
12.50 
13.00 
12.00 

—3.16 
2.46 
2-45 
i-73 

Per  cent  of 

competition. 


ao.8 

ao.6 

o 
o 

•7.0 

ao.8 

o 
o 

o 

a33-4 

a  0.3 

o 

»  7.1 


a  Includes  city  and  its  substations. 

Exhibit  3 
company 1 


Mr.  G- 


A.G- 


were  ready  to  go  into  the 

1  Op.  cit. Company  v.  U.  S. 


The  Government  alleges  that: 

testified  that  immediately  before  the  G- 


business,  in  the  latter  part  of  1899  or 
for  U.  S.  Vol.  — ,  pp.  443-445- 


34Q  Industrial  Combinations  and  Trusts 

early  in  1900,  the  bottom  dropped  out  of  the  prices  at  Albany  and 
they  practically  did  no  business  for  about  two  years.  (Vol.  — , 
p.  1947.)     His  recollection  is  that  the  price  went  down  from  12 

cents  to  6-§  cents  ultimately.    Mr.  T.  L.  G says  that  the  T 

reduced  the  price  to  6  cents  or  6-^  cents.  When  the  G s  actually 

got  started  at  Albany  they  sold  oil  as  low  as  7-5  cents,  but  did 

not  meet  the  low  prices  made  by  the  T .     (Vol.  — ,  p.  18 16.) 

The  marked  difference  between  the  prices  at  Albany,  where 
there  was  active  competition,  and  the  prices  in  other  cities  in  New- 
York  is  vividly  shown  in  Petitioner's  Exhibit  635,  which  compares 

the  T 's  prices  of  delivered  at  Albany  with  the 

prices  of  the  same  grade  of delivered  by wagons  at  New 

York  City,  month  by  month,  from  1902  to  1906,  and  which  also 
shows  the  margins  of  profit  or  loss.  The  price  at  New  York  ought 
normally  to  be  lower  than  at  Albany,  as  New  York  is  at  the  very 

seat  of  the  largest  refineries  of  the  T .    The  exhibit  shows  that 

from  1902  to  1904  the  price  at  Albany  was  most  of  the  time  1  cent 
per  gallon  lower  than  at  New  York;  that  in  1905  it  was  from  1  to 
3  cents  lower  than  at  New  York;  and  that  in  1906  it  was  for  eight 
months  2.5  cents  lower,  and  during  the  rest  of  that  year  3  cents 
lower  than  at  New  York.  The  difference  in  the  profit  per  gallon 
shown  is  about  the  same  as  the  difference  in  the  selling  price.    In 

1902,  during  four  months,  the  T was  selling  at  Albany,  at  a 

loss  of  0.31  cent  per  gallon,  while  there  was  a  profit  in  New  York 
of  from  0.54  to  0.79  cent.  During  most  of  1905  the  profit  at  Albany 
was  0.20  cent  per  gallon  or  less,  and  in  two  months  there  was  a 
loss;  while  in  the  same  months  at  New  York  there  was  a  profit 
ranging  from  2.09  cents  to  2.84  cents.  In  the  last  four  months  of 
1906  there  was  a  loss  of  0.12  cent  per  gallon  at  Albany,  and  a  profit 
of  2.74  cents  per  gallon  at  New  York. 

^  .........         . 

X X ,  a  storekeeper  of  Albany,  testified  that,  after  he 

had  been  buying  oil  from  the  G s,  K ,  a  salesman  for  the 

T ,  offered  him  a  price  one-half  cent  below  the  G s'  price. 

This  offer  was  made  in  a  conversation  in  which  K indicated 

the  price  for  which  he  would  sell by  raising  up  five  fingers  on 

one  hand  and  then  one  finger  and  half  on  the  other,  indicating  6-| 

cents.    This  price  was  to  be  made  by  means  of  a  rebate  and  X 

says  that  K told  him  that  tickets  would  be  made  out  at  the 

regular  price  and  the  amount  of  the  cut  returned  to  him  subse- 
quently.   ( ,  vol.  — ,  pp.  1932-37.) 


Trust  Methods  341 

K ,  called  by  the  defendants  (vol.  — ,  pp.  737-43),  admitted 

that  he  used  his  fingers  as  X had  said,  but  claimed  that  in  do- 
ing so  he  was  simply  trying  to  find  out  the  price  that  X was 

paying  the  G s.     When  the  question  was  first  put  to  him 

whether  he  had  offered  oil  to  X at  a  cut  price  he  did  not  answer 

positively  but  said  he  could  not  remember.  After  being  badgered  by 
defendants'  counsel  he  finally  said  he  had  made  no  such  offer.  An  ex- 
amination of  this  witness's  testimony  in  detail  will  satisfy  the  court 
that  X 's  version  of  the  matter  is  correct,  and  not  K 's. 

K B ,  a  grocer  at  Albany,  testified  that  after  he  had 

been  buying  from  the  G Brothers,  the  T 's  tank-wagon 

driver,  one  Y ,  made  him  a  proposition  to  sell  him for  six 

months  at  2  cents  a  gallon  less  than  the  prevailing  price,  the  2  cents 

to  be  paid  as  a  rebate;  that  the  T afterwards  refused  to  keep 

this  agreement,  and  B deducted  the  amount  of  rebate  to  which 

he  was  entitled  from  a  bill  for  candles  which  he  owed  the  T , 

and  the  T never  attempted  to  enforce  collection  of  the  amount 

so  deducted.    (Vol.  — ,  pp.  1970-72.) 

Y ,  called  by  the  defendants,  said  in  substance  that  he  had 

played  a  trick  upon  B ,  that  he  told  him  that  he  was  going  to 

give  him for  2  cents  below  the  market  price,  when,  as  a  matter 

of  fact,  Y knew  that  the  market  price  was  to  be  reduced  on 

the  following  day.    (Vol.  — ,  pp.  838-42.) 

GROUP  5  1 

Exhibit  i 

credit  agencies  2 


The  Government  alleges  that; 
Throughout  the  period  from  about  1904  to  the  present  time,  the 
financial  credit  and  business  standing  and  classification  of  

1  In  the  various  wholesale  and  retail  dealers'  associations  the  restraint  of  trade 
involved  is  somewhat  different  than  that  in  other  types  of  combinations.  It 
resolves  itself  into  three  main  objects;  first,  to  prevent  shipments  from  manu- 
facturers and  wholesalers  direct  to  consumers;  second,  to  confine  shipments 
from  manufacturers  and  wholesalers  to  those  who  are  regarded  as  legitimate 
retail  dealers;  third,  to  confine  the  trade  of  the  retailer  to  his  legitimate  terri- 
tory. The  manner  and  methods  of  accomplishing  these  three  objects  is  through 
a  more  or  less  arbitrary  system  of  classification.  Failure  to  conform  to  ethical 
standards  of  business  has  led  to  attempts  to  force  the  recalcitrant  into  line  by 
various  methods.     Cf.  Chap.  XII,  Groups  6  and  7. — Ed. 

2  United  States  of  America  v. —  and  others.    Petition,  In  Equity, 

In  the Court  of  the  United  States  for  the  District  of ,  pp.  34-36. 


342  Industrial  Combinations  and  Trusts 

dealers  is  reported  in  certain  credit  books  recognized  by  all 

dealers,  including  the  defendants  herein,  as  establishing  the  credit 
rating,  business  standing,  and  classification  of  said  dealers  for  all 

the  purposes  of  the trade.     These  said credit  agencies  are 

known  to  the  trade  as  the  "Blue  Book"  and  the  "Red  Book." 

The  "Blue  Book"  is  owned  and  published  at  Missouri,  by  the 

Credit  Manufacturers'  Corporation,  a  corporation  of 

the  State  of  Virginia,  the  stock  of  which  is  owned  or  fully  controlled 

by  the Manufacturers'  Association,  which  association 

is  composed  of  fifteen  or  more  of  the  largest  manufacturers'  asso- 
ciations throughout  the  United  States. 

The  "Red  Book"  is  published  at  ,  Illinois,  by  the  's 

Credit  Association,  a  corporation  of  the  State  of  Illinois,  and  is 
similar  in  its  form  to  the  said  "Blue  Book,"  and  is  used  for  the 
same  purpose. 

The  ratings  contained  in  said  "Blue  Book"  and  said  "Red  Book  " 
are  fixed  by  properly  designated  officers  of  the  said  Credit  Manu- 
facturers' Corporation  and  said  Credit  Association,  respectively, 
who  have  been  for  many  years  last  past  and  now  are  in  direct  com- 
munication by  correspondence  with  the  defendants  herein, 

, ,  and ,  relative  to  the  listing  and 

standing  of  retail  dealers  in  various  parts  of  the  territory  covered 

as  aforesaid  by  the 's  Association.     During  said  period 

said  officials  of  said credit  agencies  have  sent  advance  printed 

proof  sheets  of  new  issues  and  corrections  of  said  credit  books  to 

the  defendant, ,  as  well  as  to  officials  of  other  retail 

dealers'  associations,  and  in  pursuance  to  said  conspiracy  said 

—  has  ordered,  directed  and  made  various  changes 

in  said  credit  books  by  way  of  eliminating  the  names  of  dealers 
whose  business  did  not  conform  to  the  standards  of  classification 
arbitrarily  adopted  by  the  members  of  the  said 's  Asso- 
ciation as  hereinbefore  described;  and  in  the  said  credit  books  or 
by  special  reports  various  dealers  have,  at  the  solicitation  and 

instigation  of  said and  others  been  designated  as 

contractors,  cooperative ,  mail-order  houses  to  distinguish  these 

from  what  is  accepted  by  the  members  of  said 's  Asso- 
ciation as  legitimate  dealers  entitled  to  purchase  at 

wholesale  prices.  In  the  key  to  numbers  shown  in  the  said  "Red 
Book"  there  appears  as  a  part  of  the  plan  of  arbitrary  classification 
as  aforesaid  the  following: 

63.  Regarded  as  consumers  by  retail  association. 


Trust  Methods 


343 


In  further  pursuance  to  said  conspiracy  and  combination  during 
the  period  aforesaid,  as  was  agreed  between  the  publishers  of  said 

"Red  Book"  and  the  secretary  members  of  said ,  Bureau 

of  Information  that  in  consideration  of  being  indemnified  on  ac- 
count of  any  possible  damage  suits,  said  publishers  should  list 

dealers,  operators,  contractors,  and  consumers,  as  aforesaid,  in 
accordance  with  the  classification  fixed  by  said  organized  retail 
dealers'  associations. 

The  purpose  and  effect,  well  known  and  intended  by  defendants 
herein,  in  thus  employing  the  said  credit  agencies  to  fix  this  arbi- 
trary classification  of  the  trade,  as  aforesaid,  has  been  to 

deprive  the  contractors  and  builders  and  the  cooperative s  and 

the  mail-order  houses  and  other  consumers,  as  aforesaid,  of  the 
right  to  buy  freely  from  manufacturers  and  wholesalers,  as  herein- 
before more  particularly  alleged. 

Exhibit  2 
report,  committee  on  trade 

relations, dealer's  association  l 

March  1,  i8gg. 


In  making  this  report  of  the  result  of  the  first  year's  work  of 
the  committee  on  trade  relations,  we  wish  first  to  refer  to  the  events 
which  led  up  to  the  creation  of  this  committee.    In  February,  1898, 

certain  wholesale  dealers  in  North  ,  realizing  the  great  loss 

they  were  suffering,  both  in  volume  of  trade  and  percentage  of 
profits,  caused  by  the  competition  of  a  class  commonly  known  as 

scalpers,  called  for  a  general  meeting  of  the 's  Association 

to  discuss  the  question.  The  result  was  the  passage  of  a  resolution 
condemning  the  business  of  the  scalper  and  an  agreement  of  all 
members  present  at  the  meeting  not  to  sell  to  any  scalper  who  was 
reported  to  be  selling  to  a  class  of  trade  not  legitimate. 

At  the  last  annual  meeting  of  this  association  at ,  a  letter 

was  received  from  the Trade  Association,  presented 

by  Mr.  J. .  This  letter,  after  referring  to  the  losses  occa- 
sioned both  to  the  wholesale  and  retail  dealers  by  scalpers,  says: 
"The  remedy  for  this  evil,  in  our  opinion,  lies  in  concerted  action 
by  the  retailer  and  wholesaler  against  the  offenders,  and  to  this  end 

1  United  States  of  America  v. Dealers'  Association.  Orig- 
inal Petition,  In  the Court  of  the  United  States  for  the District  of 

,  Exhibit  E,  pp.  76-80. 


344  Industrial  Combinations  and  Trusts 

we  ask  you  to  appoint  a  committee,  with  power  to  confer  with  this 
committee,  to  see  that  united  action  can  be  taken  in  the  matter." 

The  result  was  that  by  practically  a  unanimous  vote  the 

Dealers'  Association  established  the  committee  on  trade 

relations. 

Unavoidable  delays  prevented  our  holding  our  first  meeting  until 
the  following  July,  at  which  time  there  developed  the  idea  that  the 
committee  on  trade  relations  was  to  act  as  a  classification  committee. 
Such  a  construction  would  positively  have  prevented  this  committee 
from  doing  anything  toward  the  intended  end,  for  it  was  readily 
seen  that  their  work  could  only  be  successful  by  commencing  after 
classification  was  decided. 

One  of  the  greatest  causes  of  friction  between  the  wholesale  and 
retail  associations  in  the  past  has  been  the  question  of  classification 
of  the  trade,  each  side  taking  the  stand  that  to  them  belonged 
the  right  to  classify.  Evidently,  then,  no  mutual  work  could  be 
done  until  this  difference  was  overcome  by  some  agreement  be- 
tween the Dealers'  Association  and  the  various 

retail  organizations,  which  would  provide  for  absolute  final  classi- 
fications wherever  necessary. 

Our  first  meeting  for  this  purpose  was  with  the  committee  on 
wholesale  selling  consumers  of  the Trade  Associa- 
tion, held  in  New  York  October  n.    The  result  of  this  conference 

was  the  adoption  by  the Trade  Association  and 

the Dealers'  Association  of  the  following  resolution : 

"Whenever  a  dispute  as  to  the  classification  of  any  consumer 
is  concerned  the  chairman  of  the  committee  on  wholesale  selling 

consumers  of  the Trade  Association  shall  arrange 

for  a  joint  arbitration  between  said  association  and  the 

Dealers'  Association  by  a  committee  consisting  of  one  member 

of  the Trade  Association,  to  be  appointed  by  the 

chairman  of  the  committee  on  wholesale  selling  consumers,  and 

one  member  of  the Dealers'  Association,  to  be 

appointed  by  that  association;  and  in  the  case  of  disagreement  by 
this  committee,  a  third  member  of  said  committee  shall  be  decided 
upon  by  the  two  members  already  serving,  and  the  decision  of  this 
committee  shall  be  final  concerning  such  classification,  it  being 

understood  that  concerns  decided  to  be and shall  never 

be  held  a  legitimate  customer  for  the  wholesaler  to  sell." 

Up  to  the  present  time  the Trade  Association  is 

the  only  retail  organization  that  has  positively  agreed  with  our 


Trust  Methods  345 

association  for  joint  final  classification,  but  our  committee  has 

negotiated  with  the 's  Protective  Association  and 

the Dealers  Association  of ,  and  are  very  much  pleased 

to  report  that  after  a  conference  with  the  committee  on  trade  re- 
lations of  the Retail  Association,  in  which  plan  of  work 

as  hereafter  outlined  was  discussed,  we  received  the  following  letter 
from  them: 

, ,  February  3,  i8gg. 

Chairman  ,  Committee  on  Trade  Relations, 

. Dealers'  Association. 

Dear  Sir:  It  is  a  pleasant  duty  to  inform  you  that  our  committee 
on  trade  relations  agreed  with  you  as  to  the  urgent  necessity  of  a 

movement  by  the  combined trade,  as  discussed  at  our  informal 

conference  on  the  first  instant.     The association  can 

assure  you  of  their  earnest  cooperation  to  bring  about  the  ends 
aimed  for  on  the  broad  lines  outlined  by  ourselves  at  the  conference. 

I  am  with  respect,  very  truly, 

,  Secretary. 

Our  work  so  far,  therefore,  has  been  to  provide  a  plan  for  joint 
final  classification. 

We  have  at  all  times  realized  that  this  was  but  the  first  step 
to  be  taken,  and  in  all  our  conferences  with  representatives  of  the 
retail  organizations  we  have  discussed  the  next  work  necessary. 
Joint  final  classification  is  a  good  measure,  as  when  adopted  it  re- 
moves the  cause  of  friction  in  the  past  between  the  retail  associa- 
tion and  the  Wholesale  Association.     But  without  further 

obligations  on  the  wholesaler  and  retailers  it  cannot  accomplish 
what  we  are  seeking  to  attain.    So  the  committee  recommends  that 

the Dealers'  Association  provide  in  its  by-laws  for 

the  expulsion  from  membership  of  all  members  who  sell  the  trade 
that  is  jointly  classified  as  not  legitimate  trade  for  the  wholesaler, 

and  that  in  return  for  this  action  by  the Dealers' 

Association  all  retail  dealers'  associations  provide  some  measure  to 
induce  the  members  to  buy  their  stock  only  from  such  wholesale  dealers 
as  are  members  in  good  standing  of  the Wholesale  Association.1 

A  careful  consideration  of  this  plan  we  think  will  convince 
everyone  that  the  possibilities  for  good  results  are  large  and  only 
limited  by  the  action  of  all  in  interest.  The Wholesale  Asso- 
ciation can  not  accomplish  the  desired  result  alone,  nor  can  the 
retail  association,  nor  is  it  probable  that  both  together  can  entirely 
1  Italics  are  the  editor's. 


^G  Industrial  Combinations  and  Trusts 

eliminate  the  competition  of  illegitimate  operators.     But  if  the 

wholesale  interests  not  now  members  of  the Association 

will  join  through  the  association  in  saying  to  the  retail  dealers,  We 
will  not  sell  to  anyone  who  seeks  to  injure  your  proper  busini 
and,  if  in  return,  the  retail  dealers  will  to  as  great  an  extent  as 

practicable  buy  of  the  members  of  the Wholesale  Association, 

it  seems  apparent  that  good  results  must  follow. 

We  have  been  met  in  this  proposition  many  times  by  the  state- 
ment, You  can  not  get  men,  first,  to  promise  to  do  what  you  ask, 
and  next,  after  promising,  to  carry  out  their  promises.  In  answer 
to  this  we  have  only  to  say,  if  that  is  so,  then  abolish  your  com- 
mittee on  trade  relations,  abolish  your  wholesale  and  retail  associ- 
ations, and  let  everyone  go  in  and  plunder  each  other  to  their  full 

ability.     But  we  do  not  believe  that  the  large  majority  of  

dealers  are  so  blind  to  their  own  interests  or  so  weak  in  their  de- 
termination as  to  come  to  such  a  conclusion,  and  so  we  have  recom- 
mended to  you  a  plan  which  we  trust  will  open  a  discussion  that 
will  eventually  result  in  a  victory  for  proper  business  principles. 

If  successful  in  the  work  so  far  outlined,  there  are  other  questions 

for  the  Wholesale  Association  to  take  up.     The  wholesalers 

to-day  suffer  a  loss  by  the  action  of  some  manufacturers  (who  do  not 

operate  wholesale )  in  selling  direct  to  retailers  a  portion  of 

their  product,  by  the  action  of  some  retailers  in  buying  from  such 
manufacturers  a  portion  of  their  supply,  by  the  action  of  some  com- 
mission men,  brokers,  and  inspectors,  in  endeavoring  to  do  a  business 
which  is  a  positive  injury  to  the  legitimate  wholesalers.  The  whole- 
saler is  just  as  much  a  necessity  in  the  trade  as  the  manufacturer, 
retail  dealer,  or  consumer,  and  his  business  must  be  protected  from 
improper  competition,  just  as  much  as  any  other  division,  to  the  end- 
that  a  proper  profit  may  accrue  to  all,  consistent  with  the  amount  of 
capital,  energy,  and  ability  employed.1 

Exhibit  3 

agreement  of  the  association  2 

The  Government  alleges  that: 

At  a  joint  meeting  held  in March  1  and  2,  1899,  of  delegates 

from  the Trade  Association,  the 's 

1  Italics  in  this  paragraph  are  the  editor's. 

2  Op.    cit.    United    Stales  v. Dealers'   Association. 

Original  Petition,  Exhibit  F,  pp.  80-81. 


Trust  Methods  347 

Protective  Association,  the  Retail  Dealers'  Association,  the 

Retail  Dealers'  Association,  the Retail  Dealer..' 

Association,  the  Retail  Dealers'  Association,  the  and 

Association,  the 's  Association,  and  the Asso- 
ciation of Dealers,  with  the  members  of  the 

Dealers'  Association,  it  was  unanimously  voted  to  adopt  the 
following: 

First.  That  the Dealers'  Association  take  up 

and  formulate  rules  to  classify  the  trade  into  sections,  as  follows: 

1.  Manufacturers. 

2.  Wholesale  dealers  or  agents. 

3.  Retail  dealers  and  other  legitimate  customers  of  the  whole- 
sale trade. 

The  retail  trade  to  be  classified  according  to  the  rules  governing 
such  trade  in  the  various  States  at  the  present  time,  provided  that 
in  cases  that  may  arise  where  the  wholesaler  and  retailer  do  not 
agree  before  a  sale  shall  be  effected,  the  matter  shall  be  submitted 
to  a  conference  committee  composed  of  one  member  from  the  retail 

association   interested,   one   member   from   the   

Dealers'  Association,  and,  in  event  of  these  two  not  being  able  to 
agree,  they  shall  decide  upon  a  third  member  of  the  committee, 
and  the  decision  of  such  committee  shall  be  final. 

Second.  That  the Dealers'  Association  take  up 

and  consider  the  pronounced  and  recognized  evils  from  which  both 
branches  are  suffering,  viz: 

1.  Sales  by  manufacturers  and  wholesalers  to  consumers. 

2.  Sales  by  brokers,  agents,  and  commission  men  to  consumers. 

3.  Sales  and  quotations  by  the  so-called  retail  dealers  to  con- 
sumers, through  agents,  and  by  methods  used  by  the  wholesaler 
in  soliciting  trade  from  the  retailers. 

4.  That  the Dealers'  Association  consider  and 

devise  a  plan  which  will  enable  them,  with  the  cooperation  of  the 
retail  trade,  to  control  all  such  concerns. 

5.  That  the  Dealers'  Association  provide  a 

plan  whereby  all  wholesale  dealers,  manufacturers,  commission 
men,  agents,  and  brokers  reported  by  a  State  association  for  selling 
to  the  consumers  shall  be  reported  to  the  wholesale  trade  and 
manufacturers  and  required  to  conform  to  legitimate  rules  of  busi- 
ness. 

The  following  resolution  was  also  adopted: 

"That  it  is  the  sense  of  this  meeting  that,  in  the  event  of  the 


34#  Industrial  (  OMBINATIONS  and  TRUSTS 

Dealers'  Association  complying  with  the  requests 


adopted  here  to-day,  the  retail  dealers  will  pledge  themselves  so 
far  as  possible,  to  buy  only  of  members  in  regular  standing  of  the 
Dealers'  Association." 

Exhibit  4 
report  of  trade  relation  committee  * 
"    So  the  first  year's  work  of  this  committee,  ably  assisted 


by  the  committee  on  wholesale  selling  consumers  of  the 

Trade  Association  and  their  secretary,  Mr. ,  has  resulted 

in  creating  between  the Dealers'  Association  and 

the  various  retail  dealers'  associations  mentioned  the  great  es- 
sentials to  all  trade-relations  work,  namely,  confidence  and  joint 

action;  and  the  outcome  of  this  was  the agreement.    The  first 

work  which  the agreement  called  for  was  the  classification  of 

the  various  branches  of  the  trade.  The  committee  thought  best  to 
temporarily  pass  subdivisions  Nos.  1  and  2  of  section  1  and  to  devote 
themselves  to  determining  what  was  legitimate  trade  for  the  whole- 
salers to  sell  to.  The  agreement  provided  that  this  branch  should 
be  classified  according  to  the  rules  governing  such  trade  in  the  va- 
rious States  at  the  present  time,  with  a  proviso  for  settlement  by 

joint  conference  of  all  cases  where  the Wholesale  Association 

classification  did  not  agree  with  that  of  the  local  retail  association. 
So  the  secretaries  of  all  retail  associations  parties  to  the agree- 
ment were  requested  to  notify  the  secretary  of  the Wholesale 

Association  whenever  in  their  judgment  any  wholesaler  was  selling 
a  trade  which  the  retail  association  did  not  consider  legitimate. 
Upon  receipt  of  such  request  the  secretary  of  the  Whole- 
sale Association  provided  a  classification  committee  for  each  indi- 
vidual case. 

If  the  decision  of  such  committee  agreed  with  the  decision  of  the 
retail  association  nothing  further  was  necessary  except  to  record 
the  decision.  If  the  two  classification  committees  disagreed,  each 
went  to  a  conference  committee. 

************ 

We  feel  that  the  progress  made  and  herein  reported  is  secure 
and  on  a  firm  foundation,  but  we  particularly  call  your  attention 
to  the  further  requirements  of  the agreement,  so  the  subject 

1  Op.  cit.  United  States  of  America  v. Dealers'  Association, 

Exhibit  G.  pp.  82-83. 


Trust  Methods  349 

may  have  your  best  thought  and  judgment  and  that  this  association 
will  be  growing  in  its  ability  to  grasp  and  intelligently  decide  all 
questions  of  trade  relations.    These  requirements  are: 

First.  That  we  extend  our  classifications  so  that  we  will  cover 

all  the  provisions  of  the  agreement,  and  not  only  jointly 

determine  who  is  proper  and  legitimate  trade  for  the  wholesalers  to 
sell  to,  but  who  it  is  legitimate  for  the  retailers  to  buy  from;  who 
it  is  legitimate  for  the  manufacturer  to  sell  to,  and  to  establish  a 
plan  for  recording  all  persons  engaged  in  any  form  of  scalping. 

Second.  We  will  again  refer  to  that  portion  of  the agree- 
ment which  says:  It  is  the  sense  of  this  meeting  that  in  the  event  of 
the Dealers'  Association  complying  with  the  re- 
quest adopted  here  to-day,  the  retail  dealers  will  pledge  themselves, 
so  far  as  possible,  to  buy  only  of  members  in  regular  standing 
of  the Dealers'  Association. 

Third.  The  recent  reports  of  the  annual  meetings  of  various 
retail  associations  show  that  the  retailers  are  looking  to  the 


Dealers'  Association  for  support  in  all  questions  per- 
taining to  trade  relations.  This  is  a  pleasure  to  know,  for  your 
committee  thinks  it  is  proper  that  all  persons  between  the  whole- 
salers and  retailers  should  be  referred  to  and  adjusted  by  the 

Wholesale  Association  for  the  wholesalers  and  the  State 

retail  associations  for  the  retailers. 

Fourth.  We  refer  to  section  3  of  the  second  provision  in  the 

agreement,  which  says:  Sales  and  quotations  by  the  so- 
called  retail  dealers  to  consumers  through  agents  and  by  methods 
used  by  wholesalers  in  soliciting  trade  from  the  retailers. 

Fifth.  The  work  of  this  committee  has  entailed  on  the  association 
unusual  expenses,  and  as  the  work  progresses  these  expenses  will 
increase.  The  committee  should  not  be  limited  in  its  future  work 
by  lack  of  money.  We  ask  your  consideration  of  this  question,  so 
that  at  the  proper  time  this  necessary  support  will  be  furnished. 

GROUP  6 

Exhibit  i 

customer's  lists  of  the 's  association  l 

The  Government  alleges  that: 
During  the  period  of  several  years  last  past  the  officers  of  said 
's  Association  adopted,  in  further  pursuance  to  the  afore- 


1  Op.  cit.  U.  S.  v. and  Others.    Petition,  pp.  36-39. 


350  Industrial  Combinations  and  Trusts 

said  conspiracy  and  combination,  a  scheme  involving  the  use  of 
so-called  "customer's  lists";  that  is  to  say,  the  defendant, 


-,  as  secretary  of  said  last-named  association,  and  with  the 
knowledge,  approval,  and  assistance  of  the  officers  and  directors 
thereof,  defendants  herein,  secured  from  the  members  of  said 
association  the  names  and  addresses  of  the  manufacturers  and 
wholesale  dealers  with  whom  the  said  retail  members  carried  on 

the  business  of  buying  and  receiving in  the  regular  course  of 

the  interstate  trade  and  commerce  heretofore  described.     These 

lists  were  then  rearranged  by  said so  that  at  all  times  he  was 

informed  of  the  names  of  the  retail  customers  in  his  territory  doing 
business  with  a  large  number  of  manufacturers  and  wholesalers 
located  in  many  States.  The  method  of  using  said  lists  in  pursuance 
to  said  conspiracy  and  combination  was  and  is  as  follows : 

Upon  learning  of  a  shipment  of  from  a  manufacturer  or 

wholesaler  to  a  consumer  as  aforesaid,  said ,  acting 

as  secretary  of  said  association,  notified  a  number  of  the  retail  ■ 

customers  of  said  manufacturer  and  wholesaler  making  the  so-called 
unethical  shipment,  which  customers,  in  accordance  with  a  pre- 
arranged plan,  wrote  to  said  manufacturer  and  wholesaler,  protest- 
ing against  such  shipment  and  threatening  withdrawal  of  trade  if 

the  same  practice  continued.     At  other  times  the  said 

-,  acting  in  his  capacity  as  secretary  of  said 's  Asso- 


ciation, wrote  to  such  offending  manufacturer  and  wholesaler  con- 
cerning such  so-called  nonethical  shipment,  representing  that  the 
regular  retail  dealers  resented  sales  to  consumers  by  manufacturers 
or  wholesalers,  and  so  using  the  power  of  the  united  strength  of 
such  retailers  to  compel  said  manufacturer  and  wholesaler  to 
cease  dealing  with  such  consumer. 

Another  use  to  which  said  "customer's  lists"  were  put  by  said 
acting  as  secretary  of  said  association  as  afore- 
said, in  further  pursuance  to  said  conspiracy  and  combination  dur- 
ing many  years  last  past  has  been  to  exchange  said  lists  with  other 

secretaries  of  other  trade  associations  operating  in  other 

States  than  those  covered  by  said 's  Association  as  afore- 
said, and  when  so  exchanged  the  same  method  was  pursued  by  said 
other  secretaries  in  using  such  exchanged  lists,  that  is  to  say  the  said 
other  secretaries  would  write  letters  of  complaint  or  cause  the  mem- 
bers of  their  respective  associations  to  write  letters  of  complaint 
to  the  said  manufacturer  or  wholesaler  on  account  of  such  "noneth- 
ical "  sales. 


Trust  Methods  351 

In  further  pursuance  to  said  conspiracy  and  combination  said 
as  secretary  of  said 's  Association,  and  the 


approval  and  cooperation  of  the  officers  and  directors  of  said  asso- 
ciation, some  of  whom  are  defendants  herein,  conducted  extensive, 
correspondence  with  other  secretaries  of  other trade  associa- 
tions conveying  information  as  to  the  alleged  nonethical  dealers  in 

■  who  had  sold  and  shipped to  consumers  in  violation  of 

said  "code  of  ethics,"  doing  business  as  aforesaid  in  various  States 
of  the  United  States,  the  purpose  and  effect  of  such  correspondence 
being  to  restrict  the  trade  of  the  manufacturer  and  wholesaler  to 
the  regularly  recognized  retail dealer  as  aforesaid. 

Exhibit  2 
circulation  of  information  1 
The  Government  alleges  that: 
In  further  pursuance  to  said  conspiracy  and  combination,  during 

the  period  aforesaid,  the  said ,  acting  as  secretary 

of  said 's  Association  and  as  a  member  of  said s' 

Bureau  of  Information,  with  the  aid,  assistance,  and  cooperation  of 

said ,  and  with  the  aid  and  assistance  of  other  members, 

officers,  and  directors  of  said 's  Association  and  other 

dealers  and  members  of  other  trade  associations  not  named  herein 
as  defendants,  collected  the  information  of  sales  and  shipments  of 

from  the  manufacturers  and  wholesale  dealers  to  consumers 

hereinbefore  mentioned,  and  with  the  knowledge,  consent,  and 
approval  of  all  other  parties  heretobefore  in  this  paragraph  men- 
tioned, and  did  thereupon,  about  March,  1909,  furnish  such  infor- 
mation to  the  members  of  the  said s'  Bureau,    which 

information,  with  the  names  of  the  offending  manufacturers  and 
wholesalers,  was  distributed  to  the  various  retail  dealer  members  by 
the  secretaries  of  the  various  trade  associations  affiliating  with  the 

said s'  Bureau  of  Information;  and  the  said  information, 

with  correspondence  and  records  of  proceedings,  was  published  in 

the  trade  paper  called  the in  the  year  1909,  such  publication 

being  accomplished  by  said and  other  secretary  mem- 
bers of  said s'  Bureau,  with  the  intent  and  purpose  of 

depriving  the  said  offending  manufacturers  and  wholesale  dealers 

of  the  trade  of  all  retail members  of  all  the  trade  associations 

affiliated  with  said s'  Bureau  of  Information  as  aforesaid. 

1  Op.  cit.  U.  S.  v. .    Petition,  pp.  51-52. 


352  I\mi  strial  Combinations  and  Trusts 

Exhibit  3 

"yes"  and  "no"  lists  of  the dealers'  asso- 
ciation ' 

,  November  18,  i8gg. 

To  the  members  of  the  association: 

Upon  submission  to  the  classification  committee  of  an  inquiry  as 

to  whether & ,  New  York  City; Bros., ,  N.  J.; 

&  Co.,  Boston,  Mass.; &  Co., ,  N.  J.; 

, ,  N.  Y. ; Manufacturing  Co.,  Providence,  R.  I. ; 

are  legitimate  customers  of  the  wholesale  trade,  under  the  principles 
recognized  by  this  association,  said  committee  has  carefully  investi- 
gated and  expressed  the  opinion  that  the  above  are  within  the  class 
of  dealers  whose  requirements  entitle  them  to  buy  of  the  wholesaler. 

This  decision  is  communicated  to  you  by  order  of  the  board  of 
trustees. 

Yours,  very  truly, 

Committee  on  Trade  Relations. 

,  Secretary 

YES. 

,  August  J,  IQOO. 

To  the  members  of  the  association: 

Upon  submission  of  the  question  to  our  classification  committees 
as  to  whether  the  parties  named  herewith  should  be  considered 
legitimate  customers  of  the  wholesale  trade,  under  the  principles 
recognized  by  this  association,  said  committees  have  carefully 
investigated  and  expressed  the  opinion  that  they  are  not  within  the 
class  whose  requirements  necessitate  their  buying  of  the  wholesaler. 
This  decision  is  communicated  to  you  by  order  of  the  board  of 
trustees. 
Yours,  very  truly, 

Committee  on  Trade  Relations. 

,  Secretary. 

NO. 

(Here  follows  a  list  of  78  names  of  individuals  and  firms,  manu- 
facturing concerns,  etc.  in  the  States  of  New  York,  New  Jersey, 
Pennsylvania,  and  Connecticut. — Ed.) 

1  Op.  cit.  U.  S.  v. Dealers'1  Association.  Petition,  Ex- 
hibits O  and  P,  pp.  92-93. 


Trust  Methods  353 


Exhibit  4 
circular  issued  by dealers'  association  to  the 

TRADE  » 

The  following  have  been  reported  by  the  various  eastern  associa- 
tions as  jobbing  or  selling  directly  or  indirectly  to  consumers.    The 

members  of  the Dealers'  Association  are  requested 

to  cooperate  with  the  eastern  associations  by  refusing  to  sell  them 


(Here  follow  the  names  of  more  than  fifty  individuals,  partner- 
ships, and  corporations  engaged  in  the trade. — Ed.) 

Exhibit  5 
official  report  of  the dealers'  associa- 
tion,   ,  new  york,  n.  y.2 

Statement  to  members,  April  igog. — You  are  reminded  that  it  is 
because  you  are  members  of  our  association  and  have  an  interest  in 
common  with  your  fellow  members  in  the  information  contained 
in  this  statement,  that  they  communicate  it  to  you,  and  that  they 
communicate  it  to  you  in  strictest  confidence  and  with  the  under- 
standing that  you  are  to  receive  it  and  treat  it  in  the  same  way. 

The  following  are  reported  as  having  solicited,  quoted,  or  as  hav- 
ing sold  direct  to  the  consumers: 

(Here  follow  the  names  of  more  than  fifty  individuals,  partner- 
ships and  corporations  engaged  in  the trade. — Ed.) 

REMOVED   SINCE   LAST  REPORT. 

(Here  follow  the  names  of  fifteen  individuals,  partnerships,  and 
corporations  engaged  in  the trade. — Ed.) 

Members  upon  learning  of  any  instance  of  persons  soliciting, 
quoting,  or  selling  direct  to  consumers  should  at  once  report  same, 
and  in  so  doing  should,  if  possible,  supply  the  following  information. 
The  number  and  initials  of  car,  the  name  of  consumer  to  whom  car 
is  consigned,  the  initials  or  name  of  shipper,  the  date  of  arrival  of 
car,  the  place  of  delivery,  the  point  of  origin.* 

1  Op.  cit.  U.  S.  v. Dealers'  Association,  Petition,  Ex- 
hibit T,  pp.  97-98. 

2  Op.  cit.  U.  S.  v. Dealers'  Association.  Petition,  Ex- 
hibit U,  pp.  98-100. 

3  Italics  are  the  editor's. 


354  Industrial  Combinations  and  Trusts 

As  we  are  associated  for  mutual  protection,  we  should  not  go  into 

territory  where  our  associates  have  and  sell  or  offer  to  sell 

at  a  price  lower  than  we  sell  it  in  our  home  territory. 

Exhibit  6 
association  i 


The  Government  alleges  that: 

First.  During  the  period  aforesaid  defendants  have  conspired 

and  confederated  together  to  prevent  manufacturers  of supplies 

located  throughout  the  United  States  from  selling  and  shipping 

supplies  to  any  persons,  firms,  or  corporations  located  in  the  States 
of  California,  Washington,  and  Oregon  who  have  not  belonged  to 

the Association  and  whose  names  have  not 

been  listed  in  a  book  called  the  "  Blue  Book,"  to  be  hereinafter  de- 
scribed. ...    In  order  to  force  the  manufacturers  of supplies 

to  refuse  to  sell  and  ship  to  persons  other  than  the  defendants, 
defendants  by  agreement  with  each  other  have  continuously  during 
said  period  refused  to  order  or  buy supplies  from  such  manu- 
facturers of supplies  as  have  sold  and  shipped  said  supplies 

to  persons  in  the  States  of  California,  Washington,  and  Oregon  who 

are  not  members  of  the Association  and  are  not 

listed  in  the  Blue  Book. 

Acting  under  agreement  with  each  other,  defendants  have 
withdrawn  their  business  from  manufacturers  who  have  sold  and 

shipped  to  persons  who  have  refused  to  join  said 

Association,  or  to  persons  whom  defendants  have  not  recog- 


nized as  legitimate  jobbers,  and  have  not  admitted  to  membership 
therein,  and  defendants  have  boycotted  such  manufacturers  until 
they  compelled  them  to  confine  their  sales  to  defendants. 

Second.    The  defendant of  the Associations, 

acting  in  agreement  with  the  other  defendants,  has  since  January  i, 

1907,  printed  from  time  to  time  and  issued  a  list  of  jobbers  of 

supplies  in  the  United  States,  commonly  called  in  the  trade  the 
"Blue  Book,"  and  has  distributed  said  list  to  manufacturers  en- 
gaged in  the  manufacture  and  sale  of  supplies,  and  to  the 

jobbers  named  in  the  Blue  Book.    In  the  Blue  Book  are  printed 

arbitrary  definitions  of  a  manufacturer  and  jobber  of supplies. 

These  definitions  express  the  opinion  of  the  defendants  as  to  the 

1  United  States  of  America  v. Association.    Petition  in 

Equity,  In  the Court  of  the  United  States  for  the District  of 

pp.,  12-14. 


Trust  Methods  355 

qualifications  necessary  in  order  to  entitle  one  to  be  called  a  manu- 
facturer or  jobber  and  to  be  treated  as  such.    It  is  the  intention  of 

the and  of  the  defendants  that  the  Blue  Book  shall  be 

considered  by  the  manufacturers  as  containing  the  names  of  all 
persons,  firms,  and  corporations  in  the  United  States  who  are  legiti- 
mate jobbers  of  supplies.      All  the  defendant  corporations 

and  partnerships  (except  the of  the Associa- 
tions are  listed  in  the  Blue  Book;  furthermore,  these  defendants  are 

the  only  persons,  firms,  or  corporations  located  and  doing  a 

business  in  the  States  of  California,  Washington,  and  Oregon 
who  are  named  in  the  Blue  Book. 

During  said  period  no  person,  firm,  or  corporation  desiring  to 
engage  in  business  as  a  jobber  of supplies  in  the  States  of  Cali- 
fornia, Washington,  or  Oregon  could  be  listed  as  a  jobber  in  the  Blue 
Book  except  at  the  arbitrary  discretion  of  a  majority  of  the  jobbers 
belonging  to  the Association,  and  doing  busi- 
ness in  the  locality  where  said  person,  firm,  or  corporation  desired 
to  do  business  as  a  jobber,  and  no  person  can  now  be  so  listed 
except  by  the  consent  of  such  jobbers.     In  order  to  prevent  an 

increase  in  the  number  of  jobbers  of supplies  in  said  three 

States,  defendants,  agreeing  together,  have  repeatedly  and  arbi- 
trarily refused  to  give  their  consent  to  the  listing  in  the  Blue  Book 
of  persons,  firms,  and  corporations  desirous  of  engaging  in  business 
as  jobbers  in  said  States. 

GROUP  7 
Exhibit  i 


TRADE 


The  Government  alleges  that: 

From  about  the  year  1904  to  the  present  time ,  de- 
fendant herein,  has  conducted  a  detective  agency  under  the  name 

and  style  of  the  Information  Bureau.     The  said  is  a 

regularly  paid  employee  of  the  voluntary  association  heretofore 

described  as  the 's  Association.    During  the  several  years 

last  past,  and  until  the  present  time,  said ,  with  the  assistance 

of  a  corps  of  detectives,  and  in  the  performance  of  work  done  in 
pursuance  to  and  in  assistance  of  said  conspiracy  and  combination, 

has  collected  information  respecting  sales  and  shipments  of  

from  manufacturers  and  wholesalers  to  consumers,  and  has  fur- 
1  Op.  cit.  United  States  v. .    Petition,  pp.  54-55. 


356  Industrial  Com  hi. nations  and  Trusts 

nished  said  information  to  said  and  other  secretary 

members  of  the  said s'  Bureau  of  Information  for  the 

uses  and  purposes  hereinbefore  described,  and  to  the  said 


for  the  purpose  of  having  the  same  published  in  the  said 


-,  and  so  distributed  throughout  the trade  in  various 

states  reached  by  said  publication,  all  with  the  intent  and  purpose 

on  the  part  of  said ,  ,  and of  preventing  sales  and 

shipments  of in  the  trade  aforesaid  between  the  manufacturer 

and  wholesaler  on  one  hand  and  the  aforesaid  consumer  on  the 

other.    Said also  conducted  investigations  and  made  reports 

to  the  officers  and  members  of  said 's  Association  of  the 

character  of  the  business  done  by  various  retail  dealers  in 

various  States,  which  dealers  had  not  complied  with  the  aforesaid 
rules  and  regulation  entitling  them  to  membership  in  said  last- 
named  association,  and  in  pursuance  to  said  general  conspiracy  and 

combination  said ,  with  knowledge,  approval,  and  assistance 

of  the  officers  and  members  of  said 's  Association,  adopted 

and  carried  out  various  schemes  and  devices  for  the  injury  and 

destruction  of  the  business  of  said  retail dealers  who  desired 

to  do  business  in  a  manner  different  from  the  code  of  ethics  and 
rules  adopted  by  said  association.    The  money  used  in  promoting 

the  work  of  said and  the  said Information  Bureau  was 

raised  by  subscriptions  paid  by  members  of  said 's  Asso- 
ciation and  others,  and  solicited  by  said  and 

and  other  secretary  members  of  said s'  Bureau  of  In- 
formation. 

Exhibit  2 

explosives  trade  1 

A.  I  endeavored  to  locate  the  trade  that  the  Chattanooga 
Powder  Co.  was  supplying  and  then  take  it  away  from  them  by 
naming  lower  prices. 

Q.  Did  you  locate  the  trade? 

A.  I  was  advised  by  the  railroad  agent  at  Ooltewah,  Tenn.,  who 
was  in  the  employ  for  the  purpose  of  furnishing  us  with  the  infor- 
mation regarding  all  of  the  shipments  of  the  Chattanooga  Powder 
Co. 

Q.  Who  employed  him? 

A.  I  did,  sir. 

'  Testimony  of  F.  J.  Waddell,  op.  cit.  U.  S.  v.  E.  I.du  Pont  de  Nemours  and 
C'cmfany.    Pet.  Rec.  Testimony,  Vol.  I,  pp.  257-264. 


Trust  Methods  357 

Q.  When? 

A.  I  think  it  was  in  the  year  1893. 

Q.  What  did  you  pay  him? 

A.  I  first  paid  him  $15  a  month,  and  later  $18. 

Q.  What  was  he  to  do  for  that? 

A.  He  was  to  furnish  a  weekly  statement  showing  all  shipments 
of  powder  made  from  Ooltewah,  Tenn.,  by  the  Chattanooga  Powder 
Co..  giving  name  of  consignee,  the  number  of  kegs,  and  the  des- 
tination. 

Q.  What  did  you  do  with  the  reports  that  were  made  to  you? 

A.  I  mailed  a  copy  of  it  to  Wilmington,  Del.  every  week. 


Exhibit  3 


1 


COMPANY 

REPORTS    OF    COMPETITIVE    SHIPMENTS    OBTAINED    FROM    RAILROAD 
EMPLOYEES   IN   OTHER   PARTS   OF   THE   COUNTRY. 

BIRMINGHAM,   ALA. 
The  Government  alleges  that: 

G.  T.  X ,  who  was  assistant  to  the  manager  in  the  office  of 

the  T Company  at  Birmingham  up  to  some  time  in  1902, 

testified  that  at  that  time  the  T had  a  system  of  obtaining 

from  railroad  clerks,  information  concerning  shipments  of in 

that  territory  by  independent  concerns,  including  both  shipments 
into  Birmingham  and  shipments  from  Birmingham  to  all  points. 
This  information  was  sent  by  the  railroad  clerks  to  a  post-office 

box,  without  any  name,  this  box  being  rented  by  the  T 

Company  for  that  purpose  alone.     The  information  so  obtained 

was  furnished  to  traveling  salesmen  and  other  agents  of  the  T 

with  instructions  to  get  the  business  in  any  way  they  could;  the 

T was  usually  able  to  get  its  representative  to  the  customer 

before  the  shipment  got  there.    (Vol.  — ,  pp.  2152-5.) 


TERRITORY   OF COMPANY   OF 


D.  J.  D was  employed  by  the  T from  about  1885  to 

about  1900  as  special  man  in  the  sales  department  with  head- 
quarters at  .    The  territory  of  the  T Company  of 

,   with   which   he   was   then   connected,   originally   included 

1  Op.  cit. Company  v.  the  United  States.    for  United  States, 

Vol.  — ,  pp.  597-601,  607-609,  615-618,  620-622. 


358  Industrial  Combinations  and  Trusts 

Michigan,  part  of  Indiana,  and  nearly  all  of  Ohio.    D testified 

that  during  all  that  time  the  T  Company  received  re- 

ports of  competitive  shipments  throughout  its  territory,  which  were 
generally  understood  in  the  office  to  come  from  railroad  employees. 
(Vol.  — ,  pp.  3030-32.) 

D also  testified  to  individual  cases  in  which  he  knew  of 

agents  of  railroads  furnishing  information  regarding  competitive 
shipments.    He  stated  (vol.  — ,  pp.  3032-33)  that  at  Alliance,  Ohio, 

the  agent  of  the Railroad  furnished  such  reports  and  received 

free  as  compensation,  and  that  at  Massillon,  Ohio,  the  agent 

of  the & did  the  same,  and  also  received as 

compensation.  The  defendants  called  the  agent  of  the Rail- 
road at  Alliance  and  the  agent  of  the & at  Massillon, 

who  denied  that  they  had  furnished  such  information  or  received 

therefor;  but  on  cross-examination  it  appeared,  that  there 

were  numerous  employees  of  the  Railroad  at  Alliance  and 

several  employees  of  the & at  Massillon.     ( , 

vol.  — ,  p.  1478; ,  vol.  — ,  p.  1480.)    It  is  quite  evident  that 

D used  the  term  "agents"  in  a  general  way,  referring  to  some 

person  connected  with  the  railroad  office,  and  that  the  mere  state- 
ment of  these  two  head  agents  is  no  contradiction  of  his  testimony. 

In  this  connection  it  may  be  noted  that  C was  the  T 's 

agent  at  Massillon  at  the  time  testified  to  by  D ,  and  that  on 

June  11,  1900,  K.  W.  I ,  who  was  manager  of  the  Cleveland 

station  for  the  T ,  wrote  the  letter  (Petitioner's  Exhibit  828) 

to  C at  Massillon,  asking  him  about  certain  shipments  of  the 

H Company,  and  saying: 

It  seems  to  me  that  you  could  learn  this  of  local  freight  agent. 
If  you  can,  let  us  know. 

D also  testified  (vol.  — ,  pp.  3032-3)  that  he  knew  about  an 

arrangement  at  Lansing,  Mich.,  where  the  clerk  at  the 

depot  was  furnishing  information  regarding  competitive  shipments, 

and  was  furnished  blanks  by  the  T Company  upon  which 

to  report. 


POINTS  IN  ILLINOIS. 

G.  L.  K ,  who  had  been  a salesman  for  the  T in 

Peoria  (111.)  territory,  testified  that  he  was  instructed  by  M , 


Trust  Methods  359 

special  agent  of  the  T at  Peoria,  to  go  to  Monmouth,  111. 

where  an  independent  concern,  the  X Company,  was  doing 

business,  and  make  arrangements  with  employees  of  the  railroads 
to  furnish  reports  of  that  company's  shipments;  that  he  employed 

a  freight  handler  in  the  office  of  the Railroad  for  $2  a 

month,  who  furnished  this  information,  and  that  M paid  him 

the  amount  by  cash  or  check.    (Vol.  — ,  pp.  1336,  7.) 

M ,  testifying  for  the  defendants,  admitted  (vol.  — ,  p.  1017) 

that  K got  this  information,  and  that  he  did  not  know  but  that 

he  got  it  from  railroads,  but  asserted  that  he  did  not  pay  him  the  $2 
a  month.    It  may  readily  be,  however,  that  the  item  was  included 

in  K 's  expense  accounts  and  paid  in  a  general  total,  and  not 

by  way  of  separate,  specific  payment. 


COUNCIL   BLUFFS,   IOWA,   AND   LINCOLN,   NEBR. 

A B ,  who  at  the  time  referred  to  in  his  testimony, 

1895  and  1896,  was  employed  by  theT at  Council  Bluffs,  Iowa, 

testified  that  he  obtained  reports  of  competitive  shipments  from 
employees  of  the , , ,  and railroads,  cover- 
ing all  independent passing  through  Council  Bluffs;  that  these 

reports  showed  the  name  of  the  consignor,  the  name  and  address 
of  the  consignee,  and  the  number  of  barrels  in  the  shipment;  and 

that  under  the  instructions  of  the  T 's  agent  at  Council  Bluffs, 

K W.  T ,  he  gave  these  employees for  such  service 

(Vol.  — ,  pp.  3142-3.) 

He  also  stated  (p.  3 143)  that  he  tried  to  make  arrangements  with 
railroad  taggers  and  men  whose  business  it  was  to  get  car  numbers, 
etc.,  to  make  reports  of  the  shipments  from  Lincoln,  Nebr.,  of  the 
N Company,  an  independent  concern,  and  did  not  suc- 
ceed, but  that  the  T 's  own  employees  obtained  the  informa- 
tion by  watching  the  goods  at  the  depots.    Later,  when  Mr.  B 

was  a  traveling  salesman  for  the ,  he  received  from  the  T 's 

office  lists  of  competitive  shipments  into  his  territory. 


TERRITORY. 


J.  J.  D ,  who  was  a  salesman  and  division  auditor  for  the 

Company  from  1900  to  1903,  testified  that  during  this 


time  there  was  a  system  in  vogue  by  which  the furnished 


3C0  Industrial  Combinations  and  Trusts 

reports  to  its  salesmen  showing  the  competitive shipped  into 

their  respective  territories;  that  frequently,  on  the  basis  of  these 

reports,  such  salesmen  would  tell  customers  of  independent  

companies  about  shipments  of before  the  goods  arrived;  that 

the  salesmen  were  instructed  to  find  out  the  circumstances,  the 

prices,  and  why  the could  not  sell  the  customers.    D 

also  testified  that  he  was  instructed  by  Y ,  the  general  manager 

of  the ,  to  falsely  tell  such  customers  that  the they 

had  bought  had  been  originally  purchased  from  the 

Company  and  that  the could  supply  the  same di- 
rectly at  a  lower  price.    (Vol.  — ,  pp.  906-13.) 

Y was  called  as  a  witness  for  the  defendants  in  the  Missouri 

case  in  1906,  and  on  cross-examination  was  compelled  substantially 

to  admit  that  the Company  regularly  got  reports 

from  railroad  employees  regarding  competitive    shipments,   and 
that  these  reports  were  paid  for;  and  that  the  information  thus 

obtained  was  sent  to  the agents,  with  instruction  to  cut 

prices  if  necessary  to  get  the  business.    (Vol.  — ,  pp.  n  10-12.) 

OTHER  UNFAIR  METHODS  OF  OBTAINING  INFORMATION 
REGARDING  CONPETITORS'  BUSINESS. 


ALBANY,   NEW   YORK. 

As  already  stated,  G Brothers  have  for  some  years  been 

actively  competing  with  the  T Company  in  the  sale  of  the 

at  Albany.    It  appears  that  in  the  spring  of  1904,  Mr.  W 

E ,  the  T 's  manager  at  Albany,  employed  the  F De- 
tective Agency  to  secure  information  regarding  the  business  of 

G s.     The  transaction  is  described  in  the  testimony  of  I.  J. 

D ,  who  was  a  part  owner  of  the  F Detective  Agency 

(vol.  — ,  pp.  1952-62),  and  also  in  the  testimony  of  M.  R.  O ,  a 

driver  of  the  G- s,  to  whom  a  bribe  was  offered  to  furnish  infor- 
mation (vol.  — ,  pp.  1923-28).  There  is  no  contradiction  of  this 
testimony  by  the  defendants. 

It  appears  that  W E asked  the  managers  of  the  detective 

agency  to  have  someone  bribe  a  driver  in  the  employ  of  the  G 

Brothers  to  furnish  reports  of  their  business.    The  detective  agency 

engaged  a  man  for  this  purpose,  who  met  O and  represented 

himself  as  in  the  insurance  business.  Later  he  met  O— —  again 
and  told  him  what  his  real  business  was,  and  entered  into  an  ar- 


Trust  Methods  361 

rangement  by  which  0 was  to  furnish  at  stated  periods  reports 

showing  the  business  of  G Brothers.    He  agreed  to  pay  O 


for  each  report,  and  actually  gave  him  $5  in  advance.    0- 

immediately  informed  G Brothers  of  what  had  taken  place, 

turned  over  the  identical  $5  to  them,  which  was  marked  for  identi- 
fication and  produced  at  the  time  of  taking  the  testimony  in  this 
case.  He  was  instructed  by  his  employers  to  proceed  to  carry  out 
the  arrangement. 

The  man  who  had  interviewed  0 told  him  that  he  would 

receive  a  letter  of  instructions  from  New  York.     He  did  receive 

such  a  letter  (Petitioner's  Exhibit  645)  signed  "G N ," 

instructing  him  to  send  a  report  on  the  10th  of  each  month  to 

G N ,  156  West  105th  street,  New  York  City,  and  to  sign 

with  an  "X".     Petitioner's  Exhibit  647  is  a  letter  subsequently 

received  by  0 from  G N ,  dated  May  13,  1904,  which 

says  in  part: 

Report  received  and  is  satisfactory  for  a  beginner. 
Try  to  be  more  accurate  in  the  information  in  future, 
and  have  report  include  in  full — 

(1)  Dates   when   cars   arrive. 

(2)  Whether  box  or  tank  cars. 

(3)  All  letters  and  numbers  on  cars. 

(4)  Contents  of  cars. 

The  man  who  went  under  the  name  of  G N was  really 

named  V .     He  forwarded  the  reports  sent  him  by  0 to 

the  F Detective  Agency  at  Albany,  and  they  in  turn  delivered 

them  to  the  T .    W E furnished  the  F Detective 

Agency  the  money  which  was  paid  to  O . 

D also  testified  that  W E employed  the  F 

Detective  Agency  to  furnish  men  to  follow  up  and  watch  the  wagons 

of  the  G s  in  Albany  and  also  the  wagons  of  the  independent 

U Company  at  Troy;  that  sometimes  they  would  have 

one  man  following  the  wagons  and  sometimes  as  many  as  three;  that 
these  men  kept  a  record  of  the  places  where  the  wagons  made  stops; 
that  each  of  them  was  paid  $4  a  day  by  the  detective  agency,  and 

that  the  T paid  the  detective  agency  for  the  services  thus 

rendered. 

Q ,  one  of  the  men  who  was  employed  by  the  detective 

agency  to  follow  G Brothers'  wagons,  confirms  this  testimony. 

(Vol.  — ,  pp.  1929-31.) 


362  Industrial  Combinations  and  Trusts 


BIRMINGHAM,   ALA. 

G.  T.  X testified  that  when  the  G.  T.  X Company 

started  in  business  in  Birmingham,  in  1905,  the  T had  a  man 

follow  their  wagons  on  a  bicycle  constantly  to  count  the 

number  of  buckets  delivered  at  each  store.    Later  the  T tried 

to  get  reports  from  the  drivers  of  the  X Company's  wagons. 

X instructed  one  of  his  new  drivers  that  the  T Com- 
pany would  probably  approach  him  in  a  day  or  two  with  a  proposi- 
tion to  pay  him  for  information,  and  that  he  should  accept,  and 
instructed  him  to  agree  to  give  a  copy  of  the  bills  each  night  for 

50  cents  a  day.    Soon  a  representative  of  the  T Company 

actually  did  make  this  proposition,  and  the  driver  furnished  him 
misleading  reports,  which  were  made  out  by  the  manager  of  the 
X Company.    (Vol.  — ,  pp.  2157-8.) 

S ,  the  special  agent  of  the  T at  Birmingham  during 

this  time,  testified  that  he  never  authorized  an  employee  of  the 
T to  procure  information  from  a  driver  of  the  X Com- 
pany, and  that  it  was  never  done  with  his  knowledge  or  by  his 
approval,  and  he  does  not  think  it  was  done  at  all.  (Vol.  — ,  p. 
849.) 

X 's   specific   statement   remains  uncontradicted.     S 's 

subordinates  might  have  done  things  of  which  he  did  not  know. 
His  duties  covered  the  entire  Birmingham  division,  including  all  or 
nearly  all  of  Alabama. 

PEORIA,  ILL. 

U.  S.  P testified  that  G C ,  assistant  manager  of 

the  T at  Peoria,  offered  him  $20  a  month  if  he  would  get  in- 
formation regarding  the  shipments  of  the  S Company 

from  Peoria;  and  that  he  got  the  information  by  bribing  N ,  a 

teamster  of  the  S Company,  for  $2.50  a  week  to  furnish  a 

report  of  all  shipments,  P in  turn  giving  these  reports  to  C . 

This  arrangement  continued  for  about  six  weeks  when  it  was  dis- 
covered and  the  employee  discharged.  (Vol.  — ,  pp.  1347-8.)  This 
statement  is  corroborated  in  every  respect  by  the  testimony  of 

Mr.  Y.  D.  F ,  manager  of  the  S Company  at  Peoria, 

who  discovered  the  bribery  of  his  employee  by  Merritt.  (Vol.  — , 
PP-  I374-5-) 


Trust  Methods  363 

information  obtained  by  the  t from  inspectors' 

OFFICE  REGARDING  COMPETITIVE  BUSINESS. 

D.  J.  D testified,  that,  while  he  was  in  the  employ  of  the 

T from  18S6  to  1900  in  the  territory  of  the  T Com- 
pany of ,  the  state inspectors  furnished  the  T monthly 

reports  of  their  inspections  of ,  and  that  he  frequently  saw  the 

deputy  inspectors  at  the  Office  of  the  T .     (Vol.  — ,  p. 

3034.)    Petitioner's  Exhibit  827  is  a  letter  written  by  D.  J.  S , 

manager  of  the and  sales  department  at  Cleve- 
land, to  J.  W.  K ,  dated  June  15,  1900.    It  states: 

It  is  important  that  as  far  as  possible  we  secure  the  monthly 
competitive  inspection  through  our  local  agents.  There  is  no 
reason  why  our  agents  should  not  be  able  to  secure  this  in- 
formation promptly  at  points  wdiere  deputy  inspectors  are 
located.  Of  course  it  is  an  "open  book,"  and  their  excuse  for 
asking  for  the  figures  is  simply  in  order  that  they  may  have  the 
information  a  little  earlier  than  if  obliged  to  get  it  through  the 
regular  channel.  I  assume  that  most  of  our  local  people  are 
in  close  enough  touch  with  the  deputies  to  secure  the  desired 
information.  Kindly  impress  upon  them  the  importance  of 
securing  same  promptly  on  the  first  of  each  month,  forwarding 
to  you,  and  you  in  turn  to  me,  so  that  I  will  get  the  information 
not  later  than  the  5th  of  the  month. 

G.  B.  ,  vice-president  of  the  T Company  of  , 

called  by  the  defendants,  stated  (vol.  — ,  p.  1516-17)  that  the 

inspectors  maintained  public  records  that  were  open  to  anyone, 

and  that  the  T had  a  right  to  examine  these  records  for  the 

purpose  of  ascertaining  shipments  or  sales  of  competitors,  and  com- 
petitors could  do  the  same.    These  records  are  public  records  for 

one  purpose  only,  which  is  to  show  whether  the bears  the  proper 

test.     Moreover,  the  information  which  the  T received  was 

advance  information,  the  above  letter  showing  plainly  that  it  was 
secured  before  the  results  of  the  inspections  became  a  public  record; 
and  the  T could  have  no  legitimate  need  for  advance  infor- 
mation or  for  any  information  whatever  except  for  the  purpose  of 
endeavoring  to  take  trade  away  from  the  independents. 

K.  W.  G ,  who  was  manager  of  the  T 's  Indianapolis 

territory  for  some  time,  testified  that  reports  came  to  him  myste- 
riously every  day,  delivered  by  a  boy  and  written  on  plain  paper  in 


364  Industrial  Combinations  and  Trusts 

lead  pencil,  showing  the  shipments  of  independent  concerns,  that 

he  believed  these  came  from  the  office  of  the  state inspector, 

and  that  the  practice  continued  until  it  was  exposed  by  indepen- 
dent   companies.     (Vol.  3,  pp.  1325-6.) 

S.  T.  D ,  who  about  1900  became  assistant  to  H ,  the 

latter  having  succeeded  G as  manager  at  Indianapolis,  testified 

(vol.  — ,  p.  2507)  that  for  about  a  year  information  of  competitive 
shipments  came  to  the  office  from  a  source  which  was  rather  a 

mystery  to  him  at  the  time,  but  he  afterwards  learned  from  H 

that  it  was  delivered  by  a  young  man  who  was  in  some  way  con- 
nected with  the inspector's  office  at ;  that  this  young  man 

went  around  examining  barrels  in  the  freight  depots  under  the 
pretence  of  ascertaining  whether  or  not  they  were  correctly  branded 
by  the  inspector's  office;  that  he  usually  came  every  day  with  these 
reports  and  was  very  quiet  about  it;  and  that  these  reports  showed 
the  shipments  of  all  companies  doing  business  in  Indianapolis 

except  the  T ,  giving  the  names  of  the  consignor  and  consignee, 

the  quantity  and  kind  of . 

B ,  testifying  for  the  defendants,  said  (vol.  — ,  pp.  892-93) 

that  he  had  never  heard  of  such  a  thing  and  did  not  believe  there 

was  a  word  of  truth  in  it,  but  this  is  no  contradiction  of  D 's 

specific  testimony.     B was  at  Cincinnati  and  could  not  be 

expected  to  know  all  the  details  of  the  conduct  of  the  business 
throughout  the  great  territory  of  the  T Company  of . 

Petitioner's  Exhibit  840  is  a  circular  letter  addressed  to  sales- 
men, signed  by  L B.  S ,  manager,  on  the  letter  head  of  the 

T Company,  dated  September  16,  1904.    It  was  received 

by  E D (vol.  — ,  p.  3144),  while  he  was  a  salesman  of  the 

T in  Nebraska.    The  letter  is  as  follows: 

You  understand  we  get  a  report  from  the  state inspector 

every  month,  showing  the  number  of  barrels  our  competitors 

receive  each  of and ,  and  from  this  report  I  find 

that  the  Oil  Company  is  shipping  out  from  40  to  50 

barrels  a  day;  and  yet  the  reports  of  competitive  shipments 
sent  in  by  our  salesmen  on  Form  114  do  not  show  anything 
like  this  amount;  and  our  home  office  can  not  understand  why 
there  should  be  such  a  discrepancy.  If  you  will  give  this  mat- 
ter your  strict  personal  attention,  it  does  appear  to  me  that 

you  ought  to  be  able  to  find  out  how  much  of  this  and 

goes  into  your  territory.      I  feel  that  salesmen  with 


Trust  Methods  365 

ordinary  judgment  can  get  this  information  without  making 
the  merchant  feel  that  they  are  too  inquisitive,  or  that  they 
are  trying  to  pry  into  his  private  business.  What  it  requires 
is  a  little  diplomacy.  We  are  not  endeavoring  to  get  this  in- 
formation for  the  purpose  of  criticism;  what  we  want  to  know 

is  who  is  receiving  the  outside and ,  and  if  we  knew 

it  would  put  us  in  a  position  to  help  you  get  the  business.    I 
want  you  to  make  a  special  effort  in  this  matter,  and  send  in 
Form  114  every  day,  and  give  us  all  the  information  you 
possibly  can.    Kindly  bear  this  in  mind,  and  oblige, 
Yours,  truly, 

L B.  S ,  Manager. 

At  this  point  we  may  also  call  attention  to  certain  testimony  with 

regard  to  the  abuse  of  the inspection  system  in  the  interest  of 

the  T .    N N ,  who  for  many  years  was  special  agent 

of  the  T in  the  Decatur  (111.)  district,  having  a  considerable 

territory  under  his  jurisdiction,  testified  (vol.  — ,  pp.  1 298-1300) 

that  the  inspection  of in  his  territory  was  simply  a 

farce;  that  many  of  the  inspectors  did  not  have  instruments  for 

inspecting ,  and  did  not  know  how  to  inspect  it,  and  had  no 

desire  to  do  so;  that  they  would  let  the  T itself  have  the  stencils 

(for  branding  the  statement  of  inspection  on  barrels,  etc.)  and  use 

them,  without  any  actual  inspection.     He  said,  further,  that 

inspectors  at  the  instance  of  the  T ,  sometimes  being  in- 
fluenced by  a  cigar  or  a  drink,  would  often  condemn  the of  com- 
petitors although  it  was  up  to  the  legal  test,  and  thus  prevent  its 
sale.  He  mentioned  an  instance  at  Vandalia  in  1900  when  the  in- 
spector condemned  a  carload  of shipped  in  by  the  U 

Company,  although  as  a  matter  of  fact  the would  have  stood 

the  legal  test. 

GROUP  8 


Exhibit 


company 


The  Government  alleges  that: 

The  defendant, ,  and  the  other  officers  and  di- 
rectors of  the  said  successive  corporations,  from  time  to  time 
during  the  above  period,  caused  to  be  maintained  and  did  maintain 
at  the  factory,  at , ,  a  display  room  known  as  the  "  Grave- 

1  Op.  cit.  U.  S.  v. Company.    Petition,  pp.  21-22  and  25. 


366  Industrial  Combinations  and  Trusts 

yard"  or  "Midway".  In  this  room  were  shown  s  of  com- 
peting companies  which  had  been  forced  out  of  business  by  the 
methods  above  set  out.  Prominent  display  cards  reporting  the 
names  of  these  companies,  the  date  when  they  went  out  of  business 
and  the  amount  of  money  lost  by  them,  appeared  prominently  in 
the  exhibit.  Manufacturers  purposing  to  go  into  the  business 
were  shown  this  display,  and  it  was  pointed  out  to  them  by  the  said 
officers  and  their  agents  as  the  fate  that  would  befall  any  company 
seeking  to  compete  with  them. 

This  process  of  intimidating  manufacturers  was  known  as  the 
"glooming"  process,  and  the  room  was  sometimes  known  as  the 
"glooming"  room.  Thousands  of  merchants  and  other  visitors  to 
the  factory  were  shown  this  exhibit  and  told  that  it  would  be  useless 

to  buy  other  s,  because  competing  concerns  would  soon  go 

out  of  business  and  fail  to  maintain  the  guaranties  given  with 

their s.     Said  officers  and  directors,  and  their  agents,  pointed 

to  such  exhibit  as  a  warning  to  competing  manufacturers,  dealers, 
and  agents,  and  to  other  persons  and  corporations  who  contem- 
plated  engaging   in   the   business   of   manufacturing  and   selling 

s,  that  all  competition  eventually  would  be  suppressed,  and  that 

the  "graveyard"  would  be  the  destination  of  competitors. 

Said  exhibit  was  maintained  for  the  purpose  of  harassing  and 
discouraging  competitors,  and  for  the  purpose  of  injuring  and  sup- 
pressing their  trade  and  commerce. 


.  .    The  said  defendant, and  the  other  directors, 

managers,  officers,  and  agents  of  said  successive  corporations,  in- 
cluding the  defendant  company,  for  the  purpose  and  with  the  in- 
tent of  intimidating  and  deterring  others  from  engaging  in  such 
trade  and  commerce,  and  of  injuring  and  suppressing  others  en- 
gaged therein,  have  from  time  to  time  published  and  caused  to  be 
distributed  various  lists  purporting  to  contain  the  names  of  various 

companies  which  have  ceased  engaging  in  such  trade  and 

commerce.  One  of  said  lists  so  distributed  in  January,  1910, 
reads  in  part  as  follows: 

"DEAD  COMPANIES. 

Within  the  past  15  years  158  companies  have  been 

organized  to  compete  with  the Co.    Of  these, 


Trust  Methods  367 

153   have  failed   in  business.     Their  combined  capital  was 
$5,735,000.    Their  combined  loss  was  $1,970,000.    According 

to  sworn  affidavits  of  its  officers,  the  Boston Co. 

alone  lost  $192,750.08.    Of  every  20 s  sold,  19  are . 


Exhibit  2 
CO. 


letter  to  the  trade.  * 

January  15,  19 10. 
We  enclose  herewith  new  price  list  which  we  are  mailing  to  the 
retail  trade  to-day.    These  prices  are  subject  to  the  actual  catalogue 
discount  and  the  cash  discount  only. 

We  also  enclose  memoranda  of  the  prices  at  which , , 

,  ,  and cases,  and will  be  billed  in  future 


to  our  jobbers.  These  prices  are  net,  subject  to  the  cash  discount 
only. 

These  prices  are  confidential. 

For  the  best  interests  of  our  business  we  have  determined  to  sell  our 
goods  exclusively  to  jobbers,  whom  we  find  voluntarily  conforming  to 
our  wishes  as  to  the  disposition  by  them  of  such  goods.2 

We  shall  make  all  specific  sales,  except  of  ,  with- 
out any  restrictions  whatever. 

Whether  or  not  our  wishes  as  hereinafter  stated  be  complied  with  we 
shall  from  time  to  time  exercise  our  right  to  select  the  jobbers  to  whom 
we  shall  sell  our  goods,  and  we  shall,  irrespective  of  any  past  dealings, 
refuse  to  sell  to  those  jobbers  who,  in  our  opinion,  handle  our  goods  in  a 
manner  detrimental  to  our  interest  or  whose  dealings  with  us  are  in  any 
other  respects  unsatisfactory."1 

Our  present  wishes  are  as  follow-s: 

First.  Our  goods  bearing  the  following  trademarks,  to  wit: , 

-,  and ,  will  be  sold  by  us  to  our  jobbers 


at  fixed  prices,  subject  to  a  cash  discount,  and  we  desire  that  sales 
of  these  goods  by  jobbers,  whether  to  retailers  or  to  jobbers,  shall 
be  without  deviation  at  the  prices  fixed  by  us  for  sales  to  retailers 
subject  only  to  the  cash  discount. 

1  United  States  of  America  v. Co.  and  others.     Petition  in 

Equity,  In  the Court  of  the  United  States  for  the District  of , 

pp.  14-15. 

2  Italics  are  the  Editor's. 


368  Industrial  Combinations  and  Trusts 

Second.  are  sold  only  under  the  terms  of  the  license 

covering  their  sales. 

Third.  On  all  other  goods  we  place  no  restrictions  as  to  the  prices 
at  which  they  are  to  be  sold  by  jobbers. 

Fourth.  And  further,  we  desire  that  the  jobbers  to  whom  we  sell 

our  goods  bearing  the  following  trade-marks,  to  wit,  ,  , 

1 t , ,  and shall  not  deal  in  any other  than 

those  manufactured  by  us.1 

Fifth.  All  advertisements  of  our  goods  will  be  subject  to  our 
Approval. 

Very  truly,  yours, 

The Company. 


GROUP  9 

Exhibit  i 
company  2 


The  Government  alleges  that: 

The  defendant, ,  and  the  other  directors,  managers, 

and  officers  of  the  said  successive  corporations,  from  time  to 
time,  during  the  above-named  period,  caused  to  be  built,  and 

did  build,  s  to  resemble  in  a  general  way  the  appearance  of 

other  competing s  and  to  produce  the  same  results  and  per- 
form the  same  functions.     These  s  were  not  built  or  offered 

for  sale  in  good  faith,  but  for  the  sole  purpose  of  knocking  out 

competing  s  and  driving  competitors  from  the  field.     Such 

s  were  sold  without  regard  to  the  cost  of  their  manufacture 

and  at  such  prices  as  would  ruin  and  destroy  competitors;  and 
their  manufacture  and  sale  was  discontinued  after  the  competitor 
had  been  driven  out  of  business. 

These  machines  were  generally  known  as  "knockers,"  and  were 

put  into  the  field  whenever  a  new  made  by  a  competitor 

appeared  on  the  market,  and  were  used  solely  for  the  purpose 
of  destroying  the  business  of  such  competitor  and  of  interfering 
with  contracts  made  by  such  competitors  with  purchasers  of  their 


1  Italics,  beinning  with  "shall"  are  the  Editors. 

2  Op.  cit.  U.  S.  v. Co.    Petition,  pp.  16-19,  23-24. 


Trust  Methods  369 

The  defendant, ,  and  the  other  directors,  mana- 
gers, officers  and  agents  of  the  said  successive  corporations,  from 
time  to  time,  during  the  above-named  period,  pursued  the  policy  of 

advertising  for  sale s  manufactured  by  competitors,  at  prices 

below  the  cost  of  manufacture,  and  below  the  prices  paid  for 

such  registers These  competing s  were  acquired  by  the 

defendant  company  and  its  predecessors  from  merchants  who  had 
purchased  them  of  competitors,  and  from  dealers  and  agents  of 

competing s  whom  they  had  either  forced  out  of  business  by 

threats  or  intimidations,  or  whose  business  they  had  purchased  for 

large  sums  of  money.     Such  s,  when  so  acquired,  were  then 

advertised  and  offered  for  sale  at  such  greatly  reduced  prices  for  the 
sole  purpose  of  injuring  and  discouraging  such  competitors  and  of 
discouraging  and  forcing  them  out  of  business;  and  said  directors, 

managers,  and  officers  also  pursued  the  policy  of  establishing 

agencies  in  the  immediate  neighborhood  of  competing  dealers  and 

of  so  advertising  and  so  selling  s  dealt  in  by  such  dealers, 

and,  after  forcing  such  competing  dealers  out  of  business,  by 
the  methods  above  set  forth,  the  agencies  which  were  so  estab- 
lished were  discontinued. 

Such  directors,  managers,  and  officers  also  instructed  and  di- 
rected their  agents  to  pursue  the  practice  of  threatening  to  establish 
agencies  in  the  immediate  neighborhood  of  competing  dealers,  and 
causing  competitors  to  fear  financial  losses  which  would  ensue, 
have  thereby  forced  such  competitors  out  of  business. 


The  defendant, and  the  other  directors,  mana- 
gers, and  officers  of  the  said  successive  corporations  have,  from 
time  to  time,  caused  to  be  held  and  have  held  various  conventions, 
meetings,  and  conferences  which  were  attended  by  agents  and  other 
employees,  and  at  which  the  schemes  and  plans  for  preventing  and 
destroying  competition  and  of  creating  a  monopoly  were  discussed, 
and  at  which  said  agents  and  employees  were  instructed  and  di- 
rected to  hinder  and  prevent  the  sale  of s  by  competing  com- 
panies, agents,  and  dealers,  and  at  which  such  agents  and  em- 
ployees were  instructed  and  directed  to  pursue  the  various  wrongful 
and  unlawful  methods  herein  set  forth. 

The  said  directors,  managers,  and  officers  also  caused  to  be  sent 
out,  and  did  send  out,  various  letters  of  instruction  to  their  agents 


370  Industrial  Combinations  and  Trusts 

and  employees  directing  them  as  to  further  methods  of  obstructing 
and  suppressing  the  trade  of  competitors. 

The  said  directors,  managers,  and  officers,  from  time  to  time, 
during  the  said  period,  caused  to  be  published  and  did  publish  a 

paper  known  as  "The ,"  which  was  sent  out  to  agents  as 

confidential  matter,  and  which  was  intended  to  be  and  was  re- 
garded as  a  printed  letter  of  instruction.  The  directions  given  by 
the  managers  and  officers  of  said  successive  corporations,  and  va- 
rious speeches  and  statements  of  such  managers  and  officers,  were 
published  therein,  and  their  views  given  circulation  among  the 
agents  through  the  medium  of  this  journal.  This  publication 
frequently  announced  the  intent  and  policy  of  such  directors, 

managers,   and   officers   to   monopolize   the   industry,   and 

by  means  of  said  journal  agents  were  imbued  with  the  spirit  and 
plan  to  obtain  such  monopoly  and  to  exclude  other  competitors 

from  the business  by  wrongful  and  unlawful  methods.    Said 

agents,  in  other  ways,  were  directed,  advised,  and  instructed  by 
such  directors,  managers,  and  officers  to  pursue  a  war  of  exter- 
mination against  all  competitors,  and  were  threatened  with  dis- 
missal, and  were  dismissed,  for  permitting  competition  to  exist  in 
their  territory.  Said  agents,  so  advised  and  instructed  in  such 
meetings  and  through  such  letters  and  publications  and  by  other 
means,  thereupon  carried  out  and  assisted  in  carrying  out  such 
plans  and  purposes  of  such  directors,  managers,  and  officers. 


The  defendant,  —  ,  and  the  other  directors,  offi- 
cers, and  agents  of  the  said  successive  corporations  have,  from  time 
to  time,  during  the  above-named  period,  threatened  to  institute, 
and  have  instituted  and  caused  to  be  instituted,  various  suits 
against  competitors,  dealers,  and  manufacturers,  for  the  sole  pur- 
pose of  discouraging,  preventing,  and  suppressing  the  manufacture 
and  sale  of  other s. 

Such  directors,  managers,  and  officers  instituted  such  unwar- 
ranted and  unjustifiable  suits  for  the  purpose  and  with  the  intent, 
by  reason  of  the  heavy  expense  which  would  be  incurred  in  such  liti- 
gation, of  the  sooner  being  able  to  crush  competitors,  and  as  a  result 
thereof,  of  purchasing  the  business  of  such  competitors  and  making 
the  dismissal  of  such  suits  a  part  of  the  consideration  for  the  agree- 
ment of  such  competitors  not  to  again  engage  in  such  business. 

And  such  directors,  managers,  and  officers,  from  time  to  time, 


Trust  Methods  371 

during  the  above-named  period,  conspired  and  agreed  with  various 
of  the  persons  so  sued  by  them  and  whose  business  they  had  secretly 
purchased,  that  such  persons  should  not  hereafter  make  any  defense 
to  such  suits,  or  make  only  such  defense  as  would  enable  the  suc- 
cessive corporations  to  obtain  judgments  in  their  favor. 

Said  directors,  managers,  and  officers  would  cause  the  result  of 
such  collusive  judgments  to  be  advertised  and  did  widely  advertise 
the  securing  of  such  judgments,  for  the  purpose  of  further  threaten- 
ing and  harassing  competing  manufacturers,  their  dealers,  and 
agents,  and  the  users  of  competing s. 


The  defendant, ,  and  the  other  directors,  mana- 
gers, officers,  and  agents  of  the  said  successive  corporations  have, 
after  a  long  series  of  assaults  upon  competing  manufacturers, 
dealers,  and  agents,  by  the  methods  and  means  above  set  out,  and 
by  other  methods,  coerced,  persuaded,  and  prevailed  upon  them 

to  cease  manufacturing  and  selling  or  handling  the  same; 

and  said  directors,  managers,  and  officers  have  caused  to  be  paid 
and  have  paid  out  of  the  treasuries  of  said  successive  corpora- 
tions large  sums  of  money  to  various  manufacturers  and  dealers 
in  consideration  of  the  purchase  of  their  business  and  agreement  to 
abandon  the  same  and  thereafter  not  to  engage  in  such  business. 

Said  directors,  managers,  officers,  and  agents,  in  the  manner 
above  set  out,  also  coerced,  persuaded,  and  prevailed  upon  various 
agents  of  competing  companies  to  violate  their  contracts  of  em- 
ployment with  competitors  and  to  abandon  their  employment, 
and  have  paid  such  agents  large  sums  of  money  for  so  doing;  and 
have,  in  consideration  of  their  abandonment  of  such  contracts 
and  such  employment,  promised  and  given  to  such  agents  employ- 
ment. 

Exhibit  2 
company  * 


The  Government  alleges  that: 

Some  time  during  the  year  1905  a  large  number  of  producers  of 
—  of and  caused  to  be  organized  under  the  laws  of 


1  United  States  of  America  v. Company  et  al.     Petition  in 

Equity,  In  the Court  of  the  United  States,  for  the Division  of  the ■ 

District  of ,  pp.  n-13. 


372  Industrial  Combinations  and  Trusts 

the  State  of  Florida  a  distributing  company,  known  as  the 

Export  Company,  with  a  large  capital  stock,  the  avowed 


puqiose  of  this  organization  on  the  part  of  the  producers  being 

to  create  a  normal  competition  and  to  free  the  trade  in  of 

and  from  the  grasp  of  the  aforesaid  combination  and 

monopoly,  and  to  steady  the  market  prices  in  of and 

,  and  to  render  the  business  of  the  producer  less  precarious  and 

less  hazardous. 

Thereupon,  as  soon  as  the  said Export  Company  en- 
tered into  active  business,  the  aforesaid  S. Company, 


Company, A and & ,  S.  S- 

S.  ,  J. ,  C. ,  —  M. 


and entered  into  the  fiercest  trade  warfare  against  said 

company,  and  arbitrarily  ran  the  prices  of of and 

in  the  producing  section  up  far  beyond  any  actual  value,  and 
by  a  system  of  spying  upon  said Export  Company  as- 
certained who  its  customers  were,  and  offered  of  and 

to  said  customers  far  below  the  actual  cost  of  the  same;  and 

said Export  Company,  being  thus  unable  to  dispose  of 

its  stock  of of and ,  accumulated  a  large  quantity 

thereof,  a  great  part  of  which  wras  hypothecated  to  the  banks. 
Thereupon  the  S. Company  and  others,  by  unfair  manipula- 
tion, caused  the  Savannah  market  to  decline  abnormally,  actually 

causing  the  quotations  in of to  be  reduced  30  per  cent 

in  two  weeks,  which  decline  in  the  market  caused  the  banks  to 

call  upon  the Export  Company  for  additional  margins, 

which  it  was  unable  to  put  up,  and  the Export  Company 

was  thus  compelled  to  sell  out  all  of  its  accumulated  stock  in 

of and to  the  aforesaid  combination  at  such  a  loss  that 

its  capital  stock  was  almost  entirely  wiped  out.    Said  combination 

then  and  there  exacted  from  the Export  Company  a 

written  contract  not  to  further  engage  in  the  business  of  buying, 

shipping,  and  selling  of and for  a  period  of  five 

years,  which  left  the  aforesaid  combination  in  almost  complete 
control  of  the  distributing  part  of  the  interstate  and  foreign  com- 
merce in of and . 

The  combination  then  attacked  all  the  few  remaining  competitors 
it  had  with  a  system  of  spying  and  by  other  unfair  methods  of  com- 
petition, such  as  overbidding  weak  competitors  in  the  purchase  of 

of and ,  and  offering  to  undersell  weak  competitors 

to  their  customers,  and  arbitrarily  bidding  the  Savannah  market 


Trust  Methods  373 

up  or  down  as  suited  its  purpose;  and  was  thus  enabled  to  acquire 
control  and  did  control  approximately  90  per  cent  of  the  American 
product  in of and . 

Exhibit  3 
consolidation  coal  company  ! 

The  Baltimore  and  Ohio  Railroad  Company  owns  something  over 
52  per  cent  of  the  capital  stock  of  the  Consolidation  Coal  Company, 
which  was  acquired  about  1873,  and  thus  it  controls  the  coal  com- 
pany and  the  Cumberland  and  Pennsylvania  Railroad  Company 
(P«  973)  •  The  Consolidation  Coal  Company  is  a  large  miner  of 
coal  (pp.  879-880,  2177).    In  1904  it  mined  1,833,371  tons. 

In  1904  the  Consolidation  Coal  Company  acquired  a  majority  of 
the  stock  of  the  Metropolitan  Coal  Company  of  Boston  (p.  879), 
which  latter  company  is  engaged  in  the  retail  trade,  buying  coal 
f.  o.  b.  Baltimore  or  Philadelphia,  as  the  case  may  be,  and  carrying 
the  same  to  Boston  and  there  distributing  it,  by  retail,  to  the  trade 
at  that  point  and  interior  towns  (pp.  885-886).  The  Consolidation 
Coal  Company  has  barges  which  are  occasionally  used  in  carrying 
the  coal  for  the  Metropolitan  Coal  Company,  but  usually  it  is 
carried  in  vessels  chartered  by  the  latter  company  (p.  886).  In  1903 
the  Consolidation  Coal  Company  acquired  a  majority  of  the 
stock  of  the  Somerset  Coal  Company,  paying  therefor  the  sum  of 
$22.50  per  share  (p.  975).  (Minute  book  of  the  Consolidation 
Coal  Company.) 

THE  FAIRMONT  COAL  COMPANY. 

On  the  20th  day  of  June,  1901,  the  Fairmont  Coal  Company  was 
organized,  and  as  of  July  1,  1901  (p.  939),  purchased  a  large  amount 
of  coal  property  upon  which  were  located  some  35  mines,  more  or 
less,  from  Mr.  C.  W.  Watson  and  others  (p.  941,  etc.)  The  coal 
produced  by  these  mines  amounted  to  a  very  large  tonnage,  to 
wit: 

Tons. 

1902 3>934,2i7 

1903 3^9i,783 

1904 3>75°,i76 

1  Report  on  Discriminations  and  Monopolies  in  Coal  and  Oil.  Interstate 
Commerce  Commission,  Report  of  January  25,  1907,  pp.  8-1 1. 


374  Industrial  Combinations  and  Trusts 

The  property  was  transferred  to  the  Fairmont  Coal  Company 
free  of  debt,  except  $475,000,  secure  by  mortgage  on  the  property. 
(Minutes  of  the  Fairmont  Coal  Company.) 

In  the  year  1903  the  Fairmont  Coal  Company  also  purchased  the 
control  of  the  Clarksburg  Fuel  Company  (p.  878),  which  latter 
company  was  incorporated  under  the  laws  of  the  State  of  West 
Virginia  on  the  16th  day  of  September,  1901,  to  engage  in  mining 
and  selling  coal  and  manufacturing  coke.  It  owns  a  number  of 
coal  properties  which  produce  about  800,000  tons  of  coal  per  year. 
(Cramp,  Mitchell  &  Serrill's  Manual  of  Statistics,  1905,  pp.  444- 

445-) 

The  Fairmont  Coal  Company  owns  about  33,000  acres  of  bitu- 
minous coal  lands  and  controls  by  lease  about  24,986  acres,  and 
also  has  interests  leased  to  it  by  the  Monongahela  Railroad  Com- 
pany and  by  the  Monongah  Company.  (See  Cramp,  Mitchell  & 
Serrill's  Manual  of  Statistics,  1905,  p.  501.) 


the  northwestern  fuel  company. 

The  Fairmont  Coal  Company  also  owns  (pp.  365,  879)  the 
Northwestern  Fuel  Company,  which  is  a  corporation  formed  under 
the  laws  of  the  State  of  Wisconsin,  on  the  28th  day  of  October, 
1 901,  and  which  is  the  successor  of  a  Minnesota  corporation  of  the 
same  name.  The  business  of  the  company  is  the  forwarding,  stor- 
age, selling,  and  retail  distribution  of  coal  and  the  manufacture  and 
sale  of  coke  for  Chicago  and  the  Lakes  (pp.  882,  885).  This  com- 
pany has  docks  on  Lake  Michigan  and  Lake  Superior,  at  Duluth, 
West  Superior,  Milwaukee,  possibly  Ashland,  and  other  points,  and 
has  a  hard-coal  breaker  at  Chicago  (pp.  882-884,  etc.)  and  handles 
not  only  the  coal  of  the  Fairmont  Coal  Company,  but  that  of  other 
companies,  and  during  1905,  handled  about  2,500,000  tons,  of 
which,  the  Fairmont  Coal  Company  and  its  associate  companies 
furnished  about  800,000  tons.  About  100,000  tons  were  purchased 
from  independent  operators  along  the  lines  of  the  Baltimore  and 
Ohio  Railroad  (p.  885.) 

The  wharves  and  docks  of  the  Northwestern  Fuel  Company  are 
used  by  the  Fairmont  Coal  Company  and  its  associate  companies 
for  storing  large  amounts  of  coal,  which  are  shipped  in  the  summer 
time  for  distribution  when  the  wrinter  approaches.  (See  Cramp, 
Mitchell  &  Serrill's  Manual  of  Statistics,  1905,  p.  632.) 


Trust  Methods  375 


THE  PITTSBURG   AND   FAIRMONT  FUEL   COMPANY. 

In  June  or  July,  1904,  the  Pittsburg  and  Fairmont  Fuel  Company- 
was  shipping  coal  at  the  rate  of  something  over  300,000  tons  per 
year.  Previous  to  that  time  it  had  been  selling  its  coal  through  the 
Fairmont  Coal  Company  and  had  been  getting  the  use  of  certain 
individual  cars  owned  by  the  Fairmont  Coal  Company,  which 
latter  company  determined  to  put  an  end  to  this  relationship,  and 
immediately  thereafter  a  majority  of  the  capital  stock  of  the  Pitts- 
burg and  Fairmont  Fuel  Company  was  sold  to  the  Fairmont  Coal 
Company  for  $1  (pp.  904,  911).  Mr.  C.  W.  Watson  the  president 
of  the  Fairmont  Coal  Company,  states  that  there  were  other  con- 
siderations, in  that  they  aided  the  Pittsburg  and  Fairmont  Fuel 
Company  in  its  finances. 

It  would  seem  that  after  the  notice  of  the  Fairmont  Coal  Com- 
pany to  the  Pittsburg  and  Fairmont  Fuel  Company,  that  the  first- 
named  company  would  cease  acting  as  its  sales  agent  and  would 
not  allow  it  the  use  of  the  equipment  controlled  by  the  Fairmont 
Coal  Company,  the  stockholders  of  the  Pittsburg  and  Fairmont 
Fuel  Company  practically  gave  to  the  Fairmont  Coal  Company  a 
majority  of  the  stock  of  the  Fuel  Company,  and  the  natural  in- 
ference is  that  the  stockholders  were  afraid  that  their  tonnage  might 
be  decreased  unless  the  alliance  with  the  Fairmont  Coal  Company 
was  strengthened  and  continued. 

SOUTHERN   COAL   AND   TRANSPORTATION   COMPANY. 

The  Consolidation  Coal  Company  owns  2,501  shares  out  of  5,000 
shares  of  the  capital  stock  of  the  Southern  Coal  and  Transportation 
Company  (pp.  1002,  1006),  which  latter  company  owns  about 
4,800  acres  of  coal  lands  in  Barbour  County,  W.  Va.,  with  its  mines 
near  Berryburg.  The  coal  is  of  the  Pittsburg  vein  (p.  2806),  and  in 
the  latter  part  of  1905  the  managers  of  the  Southern  Coal  and 
Transportation  Company,  finding  that  they  were  not  getting  along 
prosperously  on  account  of  the  fact  that  they  could  not  get  sufficient 
car  service  on  the  Baltimore  and  Ohio  Railroad  (p.  280),  determined 
to  sell  out  their  properties,  and  thereafter  a  contract  was  made  by 
Mr.  B.  F.  Berry,  the  president  of  the  company,  to  sell  the  entire 
capital  stock,  together  with  all  of  the  bonds  of  the  company,  to 
Messrs.  J.  H.  Wheelwright  and  C.  W.  Watson  (p.  281 1)  for  the  sum 
of  $375,000  (pp.  2810,  1009-1010). 


376  Industrial  Combinations  and  Trusts 

Mr.  C.  W.  Watson  was  the  president  of  the  Consolidation  Coal 
Company  and  Mr.  J.  H.  Wheelwright  was  the  vice-president  thereof, 
and  immediately  after  the  purchase  of  the  stock  and  bonds  of  the 
Southern  Coal  &  Transportation  Company,  Messrs.  Watson  and 
Wheelwright  sold  2,501  shares  of  the  stock  out  of  the  5,000  shares 
and  all  the  bonds  of  the  company  to  the  Consolidation  Coal  Com- 
pany for  the  sum  of  $400,000. 

It  would  appear  from  the  evidence  of  Mr.  C.  W.  Watson  (p.  1007, 
etc.)  that  it  was  agreed  that  the  $25,000  cash  payment,  apparently 
realized  by  him  and  Mr.  Wheelwright,  was  to  be  put  in  the  treasury 
of  the  Southern  Coal  and  Transportation  Company,  and  it  is  not 
clear  whether  the  mortgage  indebtedness  of  the  Southern  Coal 
and  Transportation  Company,  amounting  to  $500,000,  was  canceled 
or  not  (p.  1010),  but  there  was  an  understanding  that  there  might 
be  a  new  issue  of  bonds,  in  lieu  of  the  $500,000  of  mortgage  bonds, 
for  the  purpose  of  paying  back  to  the  Consolidation  Coal  Company 
the  money  that  it  had  invested  (p.  1013),  and  out  of  the  transaction 
it  would  appear  that  Messrs.  Watson  and  Wheelwright  made  a 
profit  of  2,499  shares  of  the  capital  stock  of  the  company. 

It  also  appears  that  the  original  owners  of  the  Southern  Coal  and 
Transportation  Company  had  about  $500,000  invested  (p.  2806), 
and  that  they  had  been  engaged  in  mining  at  that  point  for  three  or 
four  years  (p.  2807),  and  that  their  whole  difficulty  was  an  insuffi- 
cient car  service  from  the  Baltimore  and  Ohio  Railroad  (pp.  2807- 
2809),  and  in  selling  out  the  property  the  original  stockholders 
sacrificed  their  interest  and  lost  money  on  the  transaction  (pp.  2810, 
281 1),  and  that  the  property  would  have  been  worth  much  more 
on  any  railroad  that  furnished  equipment  to  take  care  of  the  output 
(pp.   2811-2812.) 

From  the  foregoing  it  will  appear  that  the  Fairmont  Coal  Com- 
pany owns  or  controls  the  Clarksburg  Fuel  Company,  the  North- 
western Fuel  Company,  and  the  Pittsburg  and  Fairmont  Fuel 
Company,  and  that  the  Consolidation  Coal  Company  owns,  or  con- 
trols, the  Somerset  Coal  Company,  the  Metropolitan  Coal  Com- 
pany, the  Cumberland  and  Pennsylvania  Railroad  Company,  and 
the  Southern  Coal  and  Transportation  Company,  and,  in  addition, 
mines  of  its  own  in  the  Cumberland  district. 

About  the  1st  of  January,  1903,  the  Consolidation  Coal  Com- 
pany bought  a  majority  of  the  stock  of  the  Fairmont  Coal  Company 
at  $47.50  per  share  (p.  975).  The  capital  stock  of  the  Fairmont 
Coal  Company  was  $12,000,000,  and  the  Consolidation  Coal  Com- 


Trust  Methods  377 

pany  acquired  $6,000,100.  In  the  year  1902  the  output  of  the  Fair- 
mont Coal  Company  from  the  37  mines  controlled  by  it  amounted 
to  3,800,000  tons,  and  it  was  estimated  that  the  annual  capacity 
was  5,000,000  tons.  The  purchase  was  made  by  the  Consolidation 
Coal  Company  from  Messrs.  A.  B.  Fleming,  S.  L.  Watson,  J.  E. 
Watson,  C.  W.  Watson,  and  J.  H.  Wheelwright  (Minutes  of  the 
Consolidation  Coal  Company),  and  by  this  latter  purchase  the 
Consolidation  Coal  Company  acquired  control  of  all  the  properties 
of  the  Fairmont  Coal  Company. 

By  its  ownership  of  52  per  cent  of  the  capital  stock  of  the  Con- 
solidation Coal  Company  (p.  973)  the  Baltimore  and  Ohio  Rail- 
road Company  controls  all  of  the  property  and  mines  of  that  com- 
pany, including  the  railroad  of  the  Cumberland  and  Pennsylvania 
Railroad  Company,  and  in  addition  it  controls  all  of  the  proper- 
ties and  mines  of  the  Fairmont  Coal  Company  and  its  subsidiary 
companies,  and  also  the  Metropolitan  Coal  Company,  a  retailer 
of  coal  at  Boston,  and  the  Northwestern  Fuel  Company,  a  dis- 
tributor of  coal  on  the  Great  Lakes. 

Exhibit  4 
american  sugar  refining  company  1 

Mr.  Garrett.  Will  you  give  us  the  story  of  that  in  your  own 
way — the  transaction  through  Mr.  Kissel  in  regard  thereto  and  the 
entire  story. 

Mr.  Segal.  The  Pennsylvania  Sugar  Refinery  consisted  of 
$3,000,000  of  bonds  and  $5,000,000  of  stock.  Five  hundred 
thousand  dollars  of  those  bonds  should  remain  in  the  treasury, 
$2,500,000  of  the  bonds  should  be  sold.  But  those  bonds  were  not 
expected  to  sell  at  par,  and  those  bonds  had  been  sold  at  a  figure 
and  the  stock  as  a  bonus. 

Mr.  Segal.  No;  as  a  bonus  with  the  bonds.  None  of  the  stock 
has  been  sold.  We  started  to  build  that  refinery,  and  I  had  a  hard 
time  to  sell  the  bonds,  because  whenever  I  went  or  my  people  went 
to  sell  some  of  the  bonds  something  happened  that  we  were  stopped. 

Mr.  Garrett.  What  would  happen? 

Mr.  Segal.  Everything  was  satisfactory,  and  within  the  next 
24  hours  they  did  not  want  them. 

1  Hearings  held  before  the  Special  Committee  on  the  Investigation  of  the 
American  Sugar  Refining  Company  and  others.  62nd  Cong.,  1st  Sess.  igio- 
1911,  Vol.  2,  pp.  1276-1285. 


Industrial  Combinations  and  Trusts 

Mr.  Garrett.  What  reasons  did  they  give?  Were  any  reasons 
given  to  you  at  any  time? 

Mr.  Segal.  No. 

Mr.  Garrett.  How  many  attempts  did  you  make  to  negotiate 
these  bonds  when  you  were  checked  in  that  way? 

Mr.  Segal.  Oh,  many  times,  many  times. 

Mr.  Garrett.  Have  you  any  opinion  or  information  as  to  why 
everything  would  be  all  right  now  and  in  24  hours  they  would  say 
they  did  not  want  the  bonds? 

Mr.  Segal.  Naturally  I  thought  somebody  did  it. 

Mr.  Garrett.  Did  you  have  any  opinion?  Give  us  your  opinion 
as  to  who  you  thought  it  was  and  as  to  why  you  so  thought. 

Mr.  Segal.  I  thought  it  came  from  Mr.  Havemeyer. 

Mr.  Garrett.  And  because  you  thought  he  wanted  to  check 
that  competition? 

Mr.  Segal.  Oh,  naturally. 

Mr.  Garrett.  Did  you  have  any  other  reason  than  a  mere  sur- 
mise? Did  you  see  any  evidence  of  his  handiwork  or  the  handi- 
work of  his  agents  anywhere  in  blocking  your  sales  of  these  bonds 
that  you  can  now  recall? 

Mr.  Segal.  I  thought  so. 

Mr.  Garrett.  Could  you  give  the  committee  any  incident  that 
occurred? 

Mr.  Segal.  No;  I  could  not. 

Mr.  Garrett.  Where  did  you  endeavor  to  market  these  bonds? 

Mr.  Segal.  Oh,  in  different  places. 

Mr.  Garrett.  In  New  York? 

Mr.  Segal.  I  had  people  who  did  the  banking  business  for  me  in 
different  places. 

Mr.  Garrett.  New  York,  I  presume? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  And  Philadelphia? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Boston? 

Mr.  Segal.  I  do  not  remember. 

Mr.  Garrett.  Do  you  know  whether  any  offer  was  made  at 
Boston? 

Mr.  Segal.  I  do  not  think  so. 

Mr.  Garrett.  Now,  go  ahead;  you  had  reached  the  point  where 
you  said  you  were  blocked  in  the  selling  of  bonds. 

Mr.  Segal.  In  the  meantime,  I  went  on  with  my  work,  and  I 


Trust  Methods  370. 

nearly  finished  that  refinery;  but  I  needed  money,  and  I  had  a 
transaction  with  a  Mr.  Kissel,  in  New  York,  that  had  nothing  to  do 
with  the  sugar  business. 

Mr.  Garrett.  What  character  of  transaction  was  that? 

Mr.  Segal.  He  loaned  me  $250,000  for  60  days.  That  had 
nothing  to  do  with  the  sugar  business. 

Mr.  Garrett.  When  was  that  transaction  with  Mr.  Kissel,  if 
you   please,    Mr.    Segal? 

Mr.  Edmunds.  I  suppose  you  want  to  know  with  reference  to  the 
Pennsylvania  Sugar  Refining  Co.? 

Mr.  Garrett.  No;  I  want  to  know  with  reference  to  this 
$250,000  transaction. 

About  when  was  that  Mr.  Segal? 

Mr.  Edmunds.  I  think,  if  you  will  pardon  a  suggestion,  if  you 
will  ask  Mr.  Segal  how  long  before  the  $250,000  transaction  oc- 
curred he  went  into  the  sugar  refining  company,  he  may  be  able 
to  answer  your  question. 

Mr.  Garrett.  Can  you  tell  me  how  long  before  the  Pennsylvania 
Sugar  Refining  Co.  deal  it  was  that  this  $250,000  loan  was  made 
to  you  by  Mr.  Kissel? 

Mr.  Segal.  Sixty  days. 

Mr.  Garrett.  Sixty  days  before? 

Mr.  Segal.  Sixty  days  before.  I  borrowed  that  $250,000  for  60 
days.  In  the  meantime,  I  went  over  to  New  York  and  spoke  to 
Mr.  Kissel  about  buying  some  of  these  sugar  bonds,  and  he  said 
he  was  not  interested.  But  five  or  six  days  before  the  $250,000  was 
due,  his  private  secretary  called  me  on  the  phone  and  he  said, 
"Mr.  Segal,  there  is  $250,000  of  yours  due  in  a  few  days."  I  said, 
"I  know  it;  I  will  pay  it."  He  said,  "When  will  you  be  coming 
over  to  New  York?"  I  said,  "I  have  nothing  to  do  at  present  in 
New  York."  He  said,  "You  come  over;  Mr.  Kissel  wants  to 
see  you."  I  came  over  there  in  a  few  days,  and  went  over  to  his 
house,  and  he  told  me,  "That  $250,000  is  due."  I  said,  "I  know 
it."  I  said,  "Your  secretary  spoke  to  me  about  it,  and  I  will  pay 
it."  He  said,  "What  are  you  doing  now?"  I  said,  "I  am  busy." 
He  wanted  to  know  how  much  work  I  had  at  that  time,  and  I 
told  him  I  had  $6,000,000  or  $7,000,000.  He  wanted  to  know  how 
many  men  I  employed,  and  I  said,  "I  don't  know;  probably  2,000." 
That  is  not  all  sugar  business,  you  understand.  He  said,  "How 
much  money  do  you  need?"  I  said,  "I  could  use  $500,000  or 
$600,000."    He  said,  "  Couldn't  you  use  more?  "   I  said,  "  Probably 


380  Industrial  Combinations  and  Trusts 

$750,000."  "No,"  he  said,  "for  the  whole  work  you  are  doing, 
you  need  more  money;  $750,000  is  not  enough."  I  said,  "I  probably 
could  use  $1,000,000."  He  said,  "I  "  I1  don't  see  how  you  can  get 
on  with  your  work  with  $1,000,000."  I  said — well,  anyhow,  we 
put  it  down  at  $1,250,000.  He  said,  "What  have  you  got  to  put 
up?"  He  said,  "Who  has  got  the  control?"  I  says,  "Right 
here."     Strange,  I  just  had  the  control  in  my  pocket. 

Mr.  Garrett.  The  control  of  what? 

Mr.  Segal.  Of  the  sugar  refinery.     I  had  it  in  an  envelope. 

Mr.  Garrett.  You  had  the  bonds? 

Mr.  Segal.  No;  I  had  the  stock.    The  stock  belonged  to  me. 

Mr.  Garrett.  The  entire  stock? 

Mr.  Segal.  The  control.  He  said,  "Who  has  got  control  in 
that  refinery?"  I  says,  "I  have."  He  said,  "Will  you  be  willing 
to  put  up  the  control?"  I  said,  "Yes."  He  said,  "What  else 
have  you  got?  Have  you  got  some  of  the  bonds?"  I  said,  "I  have 
got  $500,000  of  the  bonds."  He  says,  "What  have  you  got  in 
the  line  of  the  hotel?"  I  was  building  a  big  hotel  then.  I  said, 
"I  have  got  the  bonds."  He  said,  "  Will  you  be  willing  to  put  up 
those?"  I  said,  "Yes."  He  says,  "For  how  long  do  you  want  that 
loan?"  I  said,  "About  six  months."  He  says,  "Oh,  I  wouldn't 
loan  it  to  you  for  six  months.  I  would  loan  it  to  you  for  two  years." 
He  said,  "I  am  going  away  to  Europe,  and  you  will  be  ready  to 
pay  it  and  there  will  be  nobody  to  receive  it,  and  I  want  to  re- 
invest that  money.  I  want  to  make  it  for  two  years."  I  said  I 
would  not  take  it.  He  said,  "Let  us  make  it  for  one  year."  I 
said,  "We  will  agree  for  one  year."  He  said,  "Send  for  your 
lawyer."  I  said,  "I  don't  want  to  send  for  my  lawyer."  I 
said,  "I  can  fix  that  thing  myself."  He  said,  "I  would  not  do 
it."  So  I  telegraphed  for  my  attorney,  and  he  came  over  the  fol- 
lowing day  to  New  York,  and  I  told  Mr.  Kissel  I  would  stay  over 
the  night  in  New  York.  The  following  morning  Mr.  Kissel  came 
over,  and  he  said,  "I  thought  of  one  thing  here.  That  refinery 
is  a  new  refinery.  It  is  in  excellent  condition.  As  long  as  that 
refinery  stands  in  that  condition  the  security  is  good,  but  if  you 
should  start  that  refinery  and  run  it,  and  the  Sugar  Trust  should 
fight  you,  you  will  lose  money  on  those  bonds  and  the  stock  will 
not  be  the  same  value  as  it  is  to-day.  I  want  you  to  sign  that 
during  the  period  of  that  loan  you  should  not  run  that  refinery." 
I  said,  "I  will  do  it."  Mr.  Kissel  had  his  office  in  the  Mutual  Life 
1  Thus  in  original. — Ed. 


Trust  Methods  .  381 

Building  in  New  York,  and  he  had  his  safe  down  there.  He  said 
to  my  lawyer,  "No;  let  us  go  over  to  my  lawyer" — to  Mr.  Kissel's 
lawyer — and  they  will  fix  it  up. 

Mr.  Garrett.  Who  was  your  lawyer? 

Mr.  Segal.  I  want  to  say  to  you  I  will  be  very  glad  to  give  the 
name,  but  please  do  not  send  for  the  man.    The  man  is  dying  now. 

Mr.  Garrett.  Who  was  Mr.  Kissel's  lawyer? 

Mr.  Segal.  My  lawyer  was  Mr.  Thomas  B.  Harned. 

Mr.  Garrett.  He  was  your  lawyer? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Who  was  Mr.  Kissel's  lawyer? 

Mr.  Segal.  Kissell's  lawyer?  Mr.  Kissel  had  no  lawyer.  He 
went  to 

Mr.  Garrett  (interposing).  Was  it  Mr.  John  E.  Parsons? 

Mr.  Segal.  That  is  the  gentleman  he  went  to.  Mr.  Kissel 
says,  "No;  let  us  go  to  my  lawyer,"  and  I  took  my  coat  and  started 
to  go  with  him,  and  Mr.  Kissel  said  to  me,  "You  stay  right  here 
and  we  will  go  over."  They  went  away  and  they  came  back  in 
about  15  minutes,  and  Mr.  Harned  said,  "Mr.  Segal,  Mr.  Kissel 
took  me  to  Mr.  Parsons,  and  Mr.  Parsons  is  doing  a  great  deal 
of  work  for  the  Sugar  Trust,  and  I  want  you  to  know  it."  I  said, 
"What  does  that  mean?"  He  says,  "Mr.  Parsons  represents 
dozens  of  corporations.  I  want  to  say  to  you  the  securities  I  will 
get  from  you  will  be  in  my  safe  and  in  my  building  until  you  take 
them  out."  I  said,  "All  right." 

Mr.  Garrett.  That  was  Kissel  talking? 

Mr.  Segal.  That  was  Mr.  Kissel.    We  made  a  contract. 

Mr.  Garrett.  Will  you  state  what  that  contract  was? 

Mr.  Edmunds.  Have  you  the  contract,  Mr.  Garrett.  You  might 
submit  that  to  him  and  ask  whether  or  not  that  is  the  contract. 

Mr.  Garrett.  Will  you  examine  this  contract,  Mr.  Segal,  Ex- 
hibit L  to  the  bill  filed  by  the  Government  in  the  southern  district 
of  New  York  against  the  American  Sugar  Refining  Co.  and  others, 
and  state  whether  that  is  the  contract  which  you  entered  into 
with  Mr.  Kissel? 

Mr.  Segal  (after  examining  the  document).  That  is  the  contract. 

Mr.  Garrett.  Mr.  Chairman,  I  wish  to  have  the  stenographer 
incorporate  this  contract,  Exhibit  L,  in  the  record  at  this  point. 

The  Chairman.  Mr.  Stenographer,  you  will  copy  that  contract 
in  the  record  at  this  point. 

The  Committee  will  take  a  recess  at  this  time  until  half  past 


382  Industrial  Combinations  and  Trusts 

2  o'clock  this  afternoon,  at  which  time,  Mr.  Segal,  we  will  resume 
your  examination. 

testimony  of  adolph  segal — Continued 

Mr.  Garrett.  Mr.  Segal,  just  previous  to  the  adjournment  for 
luncheon  you  had  identified  Exhibit  L  to  a  petition  filed  by  the 
United  States  of  America  against  the  American  Sugar  Refining 
Co.  and  others  in  the  Circuit  Court  of  the  United  States  for  the 
Southern  District  of  New  York  as  an  agreement  or  contract  be- 
tween Mr.  Kissel  and  yourself,  touching  the  matter  of  a  loan 
about  which  you  had  previously  testified.  I  want  to  ask  you  when 
you  first  learned  that  the  money  loaned  you  under  that  agreement 
came  from  the  American  Sugar  Refining  Company. 

Mr.  Segal.  Probably  six  weeks  or  two  months  afterwards.  I 
dined  with  Mr.  Kissel,  and  he  joked,  and  he  mentioned  many  times 
Mr.  Havemeyer.  I  says,  "Mr.  Kissel,  I  think  that  money  comes 
from  the  Sugar  Trust."  He  says,  "  What  is  the  difference?  Suppose 
it  does  come  from  them?"  It  was  probably  six  weeks  or  two 
months  after  the  loan  was  made. 

Mr.  Garrett.  Six  weeks  or  two  months  after  the  transaction? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Well,  I  understood  you  to  say  that  when  you 
learned,  while  these  negotiations  were  pending  there  in  New 
York 

Mr.  Edmunds.  No;  excuse  me;  negotiations  were  not  pending. 
They  had  been  consummated.  They  were  in  New  York  for  the 
purpose  of  signing  the  papers. 

Mr.  Garrett.  Just  about  the  time  you  signed  the  papers  you 
learned  that  Mr.  John  E.  Parsons  was  connected  with  the  matter? 

Mr.  Segal.  Oh,  no. 

Mr.  Garrett.  When  did  you  first  learn  that? 

Mr.  Segal.  I  understood  that  Mr.  Parsons  was  Mr.  Kissel's 
lawyer. 

Mr.  Garrett.  When  did  you  first  learn  that? 

Mr.  Segal.  When  we  talked  of  the  deal. 

Mr.   Garrett.  About  the  time  you  began  the  negotiations? 

Mr.  Segal.  Yes;  and  it  suddenly  came  over  me. 

Mr.  Garrett.  And  you  made  some  inquiry? 

Mr.  Segal.  No;  I  said  to  Mr.  Kissel,  "Is  not  Mr.  Parsons  the 
Sugar  Trust's  lawyer?"     Mr.  Kissel  said,  "Why,  he  represents 


Trust  Methods  383 

dozens  of  other  parties ;  and  the  best  proof  of  it  is  that  the  securities 
will  be  with  me." 

Mr.  Garrett.  I  assume  that  when  Mr.  Parson's '  name  was 
mentioned,  and  you  learned  that  he  was  Mr.  Kissel's  lawyer,  it 
immediately  aroused  your  suspicion  that  it  might  be  this  money 
came  from  the  Sugar  Trust? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  And  did  the  statement  of  Mr.  Kissel,  which  you 
have  mentioned,  disarm  your  suspicions  in  that  regard? 

Mr.  Segal.     Yes. 

Mr.  Garrett.  And  you  made  no  further  inquiry  in  that  respect? 

Mr.  Segal.  Yes;  I  had  a  transaction  with  Mr.  Kissel  before  of 
$250,000. 

Mr.  Garrett.  Did  you  suppose  that  he  was  loaning  his  own 
money,  or  that  he  was  agent  for  some  one  else? 

Mr.  Segal.  I  thought  he  was  able.  His  wife  is  a  Vanderbilt, 
and  I  thought  they  were  able  to  do  it. 

Mr.  Garrett.  You  got  the  money,  then? 

Mr.  Segal.  Yes;  I  got  the  money  in  installments. 

Mr.  Edmunds.  You  will  notice  from  the  agreement  that  $200,000 
of  the  $1,250,000  was  to  be  retained  for  the  purpose  of  completing 
the  Majestic  Apartment  House,  which  Mr.  Segal  was  then  in  the 
course  of  building  and  which  was  nearing  completion. 

Mr.  Garrett.  It  was  to  be  paid  out  of  that.  I  understand  Mr. 
Segal  says  so.  You  got  the  money  in  accordance  with  this  agree- 
ment? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  What  commission  did  you  pay  Mr.  Kissel? 

Mr.  Segal.  $100,000. 

Mr.  Garrett.  $100,000  commission? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Do  you  know  whether  he  got  any  other  commis- 
sions than  that? 

Mr.  Segal.  I  do  not  know. 

Mr.  Garrett.  You  do  not  know  how  that  was? 

Mr.   Segal.  No,   sir. 

Mr.  Garrett.  That  was  all  you  paid  him? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Now,  take  up  the  thread  of  the  story  from  that 
point  on,  will  you,  and  in  your  own  way  relate  it  to  the  committee? 
1  Thus  in  original. — Ld. 


384  Industrial  Combinations  and  Trusts 

Mr.  Segal.  After  that  I  had  some  other  transactions  with 
Mr.  Kissel. 

Mr.   Garrett.  Touching  the  same  matter? 

Mr.  Segal.  No. 

Mr.  Edmunds.  I  suppose  you  want  the  witness  to  confine  his 
statement  to  matters  that  relate  to  the  sugar  refinery,  do  you  not? 

Mr.  Garrett.  Yes;  directly  or  indirectly.  Perhaps  those  trans- 
actions with  Mr.  Kissel  may  become  important.     We  will  see. 

Mr.  Segal.  Then  I  paid  the  interest,  after  90  days.  I  paid  the 
interest  quarterly,  every  three  months. 

Mr.  Garrett.  You  paid  the  interest  quarterly? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Let  me  get  that.  Did  you,  at  the  time  you  closed 
the  contract,  pay  interest  for  three  months? 

Mr.  Segal.  When  I  wanted  to  sell  some  bonds,  I  could  not;  I 
could  not  sell  any  more,  for  the  reason  that  the  matter  came  up  and 
then  they  asked  when  I  was  going  to  start  the  refinery,  and  then  I 
had  to  tell  them  about  that  contract,  and  nobody  would  want  to 
buy  bonds  when  the  plant  was  in  such  condition  that  it  could  not  be 
started  up. 

Mr.  Garrett.  When  was  it  that  you  undertook  to  sell  the  bonds? 

Mr.  Segal.  Right  away  after  that.  I  had  some  other  bonds — 
$1,500,000  of  bonds  of  that  institution. 

Mr.  Garrett.  Was  it  shortly  after  you  borrowed  this  money 
that  you  undertook  to  sell  the  bonds? 

Mr.  Segal.  The  balance  of  the  bonds? 

Mr.  Garrett.  The  balance  of  the  bonds. 

Mr.  Segal.  Yes. 

Mr.  Garrett.  How  long  after?  Do  you  remember  about  how 
long  it  was? 

Mr.  Segal.  Probably  a  few  months. 

Mr.  Garrett.  A  few  months.  Now,  going  back  for  a  moment; 
at  the  time  you  borrowed  the  money  you  paid  interest  in  advance 
for  three  months,  did  you? 

Mr.  Segal.  I  do  not  think  so;  no. 

Mr.  Edmunds.  The  agreement  did  not  call  for  it. 

Mr.  Garrett.  At  the  end  of  the  first  quarter  you  did  pay 
interest? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Was  that  for  the  past  quarter? 

Mr.  Segal.  Yes;  for  the  past  quarter. 


Trust  Methods  385 

Mr.  Garrett.  You  paid  the  interest  quarterly? 

Mr.  Segal.  Yes,   sir. 

Mr.  Garrett.  When  did  you  pay  the  commission? 

Mr.  Segal.  The  commission  was  taken  out. 

Mr.  Gvrrett.  Was  taken  out  of  the  loan? 

Mr.  Segal.  It  was  taken  right  out  at  once  from  the  money. 

Mr.  Garrett.  All  right.    Now,  go  ahead. 

Mr.  Segal.  Then  I  tried  to  repay  that  loan,  and  I  went  to  Mr. 
Kissel,  and  I  wanted  to  know  if  Mr.  Kissel  would  not  divide  that 
loan. 

Mr.  Garrett.  Was  that  at  the  time  you  wanted  to  sell  the 
bonds? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Well,  go  on. 

Mr.  Segal.  I  wanted  that  he  should  divide  the  sugar  securities 
from  the  other  securities,  and  he  could  not  do  it.  He  said  that  it 
could  not  be  done.  I  made  him  different  propositions,  and  it  was 
too  much  for  me  to  plank  over  $1,250,000  at  one  clip,  and  I  thought 
if  he  would  divide  that  in  half  it  would  be  easier  for  me  to  pay  it; 
but  the  reply  was  that  that  could  not  be  done. 

Mr.  Garrett.  That  that  would  not  be  done? 

Mr.   Segal.  Could  not  be  done. 

Mr.  Garrett.  Could  not  be  done? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  Why  could  it  not  be  done?    Did  he  say? 

Mr.  Segal.  No. 

Mr.  Garrett.  Was  this  subsequent  to  the  time  that  you  had 
learned  that  this  money  came  from  the  American  Sugar  Refining 
Co.? 

Mr.  Segal.  That  was  afterwards;  yes. 

Mr.  Garrett.  It  was  after  you  had  learned  that  the  money 
came  from  the  American  Sugar  Refining  Co.? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  What  did  you  do  next? 

Mr.  Segal.  Well,  I  tried  different  ways  to  get  those  securities 
out  and  I  could  not. 

Mr.  Garrett.  After  he  told  you  that  he  could  not  divide  the 
securities,  were  there  any  further  negotiations  with  him — any  other 
offers  made  to  him? 

Mr.  Segal.  Oh,  I  made  him  different  propositions. 

Mr.  Garrett.  Well,  what  were  those  propositions? 


386  Industrial  Combinations  and  Trusts 

Mr.  Segal.  I  offered  to  pay  him  $100,000  as  a  premium  if  he 
would  let  me  run  the  refinery. 

Mr.  Garrett.  If  he  would  let  you  run  it? 

Mr.  Segal.  Yes. 

Mr.  Garrett.  About  what  time  was  that  with  reference  to  the 
loan — about  how  many  months  after  you  had  borrowed  the  money? 

Mr.  Segal.  Oh,  probably  four  or  five  months. 

Mr.  Garrett.  And  he  refused  that  offer? 

Mr.  Segal.  He  refused  that  offer. 

Mr.  Garrett.  Well,  go  ahead. 

Mr.  Segal.  Well,  that  is  the  way  it  went  on  until  the  end  of  the 
year.  I  paid,  three  times,  interest;  three  times  I  made  the  payment 
of  interest;  and  the  fourth  one,  I  offered  the  money  providing  he 
would  give  me  the  coupons  back  from  the  bonds,  and  he  did  not 
want  to  do  that. 

Mr.  Garrett.  Did  he  refuse  to  do  it? 

Mr.  Segal.  He  refused  to  give  me  the  coupons,  to  detach  the 
coupons  from  those  bonds. 

Mr.  Garrett.  Why?     Did  he  say? 

Mr.  Segal.  He  said,  "  Because,  when  we  settle,  you  will  have  the 
coupons  with  them;  but  at  present  I  will  not  give  them  up." 

Mr.  Garrett.  Go  ahead. 

Mr.  Edmunds.  I  suppose  you  understand  that  he  refers  to  the 
coupons  attached  to  the  Pennsylvania  Sugar  Refining  Co.'s  bonds, 
and  not  to  the  others? 

Mr.  Garrett.  Yes;  I  so  understand.     Go  ahead,  Mr.  Segal. 

Mr.  Segal.  Well,  I  think  that  is  the  end  of  the  story. 

Mr.  Garrett.  What  occurred  then  with  your  business  matters, 
after  he  had  refused  to  do  that?  What  sort  of  situation  did  you 
find  yourself  in,  as  a  result? 

Mr.  Segal.  I  found  myself  in  difficulties.  I  had  different  works 
going  on,  and  I  could  not  raise  money;  and  then  Mr.  Hippie  com- 
mitted suicide,  and  that  was  the  end  of  the  whole  thing. 

Exhibit  5 

gary  dinners  1 

Mr.  Gary.  Mr.  Chairman,  the  question,  as  it  seems  to  me,  opens 
up  a  consideration  of  what  has  been  referred  to  as  proceedings  at 

1  Testimony  of  Judge  Elbert  H.  Gary.  Hearings  before  the  Committee  on 
Investigation  of  United  States  Steel  Corporation,  62nd  Cong.,  2nd  sess.  191 1- 
1912,  pp.  75-77,  262-274,  279-281. 


Trust  Methods  387 

some  of  the  dinners,  as  well  as  a  proposed  international  iron  and 
steel  institute;  and  with  the  permission  of  the  committee  I  will  en- 
deavor to  state,  as  briefly  as  I  can,  exactly  what  is  involved  in  the 
whole  subject  matter,  intending  to  show  what  we  have  done  and 
what  our  intentions  have  been  and  are. 


Now,  I  need  not  suggest  to  lawyers,  at  least  on  the  committee, 
and  perhaps  you  are  all  lawyers,  I  do  not  know  about  that,  that  the 
interpretation  of  the  Sherman  Act  has  been  more  or  less  involved 
in  doubt.  Evidently  the  act  was  intended  to  prevent  the  existence 
and  exercise  of  monopolies  and  also  the  restraint  of  trade.  A  com- 
pany like  the  United  States  Steel  Corporation,  with  50  per  cent  of 
the  domestic  steel  business  of  this  country,  was  confronted  with  two 
propositions.  It  had  no  right  to  endeavor  to  prevent  reductions  in 
prices,  or,  in  other  words,  to  maintain  the  equilibrium  of  business 
and  maintain  prices  substantially  level  or  at  least  free  from  sudden 
and  violent  fluctuations  by  means  of  any  sort  of  an  agreement  ex- 
press or  implied.  We  had  no  lawful  right,  as  I  understand,  to  make 
any  agreement,  express  or  implied,  directly  or  indirectly,  with  our 
competitors  in  business  to  maintain  prices,  notwithstanding  we 
were  receiving  letters  daily  from  the  jobbers  all  over  the  country 
begging  us,  if  possible,  to  prevent  demoralization  and  to  prevent 
decrease  in  prices  which  should  mark  down  their  inventories  and  in 
many  cases  subject  them  to  the  risk  of  bankruptcy.  On  the  other 
hand,  considering  this  same  question  of  sustaining,  so  far  as  practi- 
cable, the  equilibrium  of  trade,  we  believed  we  had  no  moral  or 
legal  right  to  become  involved  in  a  bitter  and  destructive  competi- 
tion, such  as  used  to  follow  any  kind  of  depression  in  business  among 
the  iron  and  steel  manufacturers,  for  the  reason  that  if  we  should  go 
into  a  competition  of  that  kind  it  meant  a  war  of  the  survival  of  the 
fittest;  it  meant  that  a  large  percentage,  as  in  old  times,  of  the  peo- 
ple engaged  in  the  manufacture  of  steel  would  be  forced  into  bank- 
ruptcy for  many  reasons — their  facilities  for  manufacture  were  not 
so  good,  their  cost  of  production  was  high,  their  equipment,  their 
organization,  their  decreased  ownership  of  some  of  the  raw  products 
and  other  things  of  that  kind  which  enter  into  the  cost  of  production, 
would  place  them  at  a  disadvantage,  and  therefore  it  was  believed, 
by  me  at  least,  that  it  was  not  for  the  best  interests  of  the  manufac- 
turers generally  or  for  their  customers  who  desired  stability  as  op- 
posed to  demoralization  and  wide  fluctuations  or  for  the  employees 


388  Industrial  Combinations  and  Trusts 

of  the  various  corporations  throughout  the  country  who  desired, 
so  far  as  possible,  steady  work — continuous  work  at  the  best  prices, 
and  a  wide,  svidden,  extreme  lowering  of  prices  necessarily  meant 
reduction  in  the  wages.  Reductions  were  advocated  almost  at  the 
start  of  the  panic  of  1907,  and  many  of  you  know  that  our  company 
took  a  leading  part  in  opposing  that  and  we  went  through  that 
panic  without  making  any  reduction  in  wages,  although  many,  if 
not  all,  of  our  competitors  before  the  year  was  terminated  did  ma- 
terially reduce  their  wages. 

Now,  the  question  was  how  to  get  between  the  two  extremes  of 
securing  a  monopoly  by  driving  out  competition,  however  good- 
naturedly,  in  a  bitter,  destructive  competition  or  without  making 
any  agreement,  express  or  implied,  tacit  or  otherwise,  which  should 
result  in  the  maintenance  of  prices,  and  so,  gentlemen,  I  invited  a 
large  percentage  of  the  steel  interests  of  the  country  to  meet  me  at 
dinner  and  then  presented  these  views  to  them  and,  so  far  as  I  could, 
the  results  of  our  becoming  demoralized  and  extreme  decreases  in 
prices  like  those  which  obtained  under  the  old  regime.  Then,  I  said 
that  it  seemed  to  me  the  only  way  we  could  lawfully  prevent  such 
demoralization  and  maintain  a  reasonable  steadiness  in  business, 
whether  we  lowered  the  prices  from  time  to  time  or  not,  whether 
depending  upon  circumstances  we  were  willing  to  make  concessions 
or  reductions  after  the  jobbers  had  relieved  themselves  of  the  large 
lots,  so  as  to  prevent  demoralization,  was  for  the  steel  people  to 
come  together  occasionally  and  to  tell  one  to  the  others  exactly 
what  his  business  was.  In  other  words,  a  disclosure  by  each  one  to 
all  others  of  all  the  circumstances  surrounding  his  particular  busi- 
ness. In  other  words,  to  state  it  simply,  if  three  men,  gentlemen  on 
this  committee,  were  practicing  law  in  a  certain  town  and  each  one 
knew  that  the  customary  fee  for  services  in  court  was  $50  a  day  and 
a  gentleman  from  another  part  of  the  country  should  locate  in  that 
town  and  make  a  totally  different  price,  very  much  lower,  he  would 
immediately  get  up  some  sort  of  competition  amongst  these  pro- 
fessional men.  If  those  three  men,  however,  on  this  committee, 
were  in  daily  conference  and  each  one  knew  that  the  others  did  not 
propose  to  change  the  fees,  probably  this  outsider  would  not  make 
very  much  headway  in  creating  a  demoralization. 


Mr.  Beall.  Judge,  I  am  interested  in  the  statement  that  you 
made  about  these  dinners.    Were  they  called  "the  Gary  dinners?" 


Trust  Methods  389 

Mr.  Gary.  I  have  seen  some  of  the  papers  designate  them  in  that 
way. 

Mr.  Beall.  About  what  date  did  you  begin  to  have  these 
dinners? 

Mr.  Gary.  During  the  panic  of  1907,  or  just  following.  I  think 
during  it — before  the  panic  was  over.  May  I  inquire  whether  you 
were  present  when  I  described  that  the  other  day — the  first  dinner 
given — when  the  steel  people 

Mr.  Beall.  Since  1907  have  these  dinners  been  held  at  any  stated 
ntervals,1  or  have  they  been  at  such  times  as  suited  your  conven- 
ience? 

Mr.  Gary.  They  have  been  given  at  such  times  as  suited  my  con- 
venience and  disposition,  and  public  announcement  has  been  made 
in  each  instance  and  what  took  place  at  the  dinners.  If  there  was 
any  question  of  business  referred  to,  it  has  been  given  to  the  public 
press.  Latterly,  for  some  time — in  fact,  the  major  part — there 
have  not  been  so  very  many  dinners  as  you  might  think;  but  at 
most  of  the  dinners  what  I  said  was  taken  down  and  written  up  and 
printed,  and  I  have  promised  the  committee,  at  their  request,  to 
furnish  these  printed  speeches.  At  two  of  the  dinners  everything 
that  was  said  was  taken  down.  It  happened  so ;  and,  as  it  was  taken 
down,  I  had  it  written  up  and  printed  and  distributed  to  those  who 
were  present — so  that  every  thing  that  was  said  there  was  taken 
down.  At  one  of  those  dinners  the  question  of  prices,  or  the  question 
of  markets,  or  what  ought  to  be  done  was  stated  fully  and  freely 
by  all  of  them,  and  all  of  us  must  abide  by  the  record  which  we 
made.  There  is  no  concealment  about  it.  There  never  has  been. 
We  will  furnish  those  to  the  committee. 


Mr.  Gary.  There  is  just  one  question  involved  in  those  dinners, 
it  seems  to  me:  That  is  whether  or  not  it  is  lawful,  and  is  good  law 
and  good  morals,  to  endeavor  by  intercourse  such  as  you  see  de- 
scribed in  those  proceedings  to  maintain  to  a  reasonable  extent  the 
equilibrium  of  business,  to  prevent  utter  demoralization  of  business 
and  destructive  competition. 

Mr.  Beall.  That  was  the  purpose  of  each  one  of  those  dinners? 

Mr.  Gary.  That  and  nothing  else. 

1  Thus  in  the  original. — Ed. 


39°  Industrial  Combinations  and  Trusts 

The  Chairman.  I  know;  but  I  mean  to  advise  the  gentlemen  that 
this  committee  will  not  look  into  anything  more  than  his  official 
acts. 

Mr.  Gary.  Prices  were  not  attempted  to  be  fixed,  were  not  fixed, 
could  not  be  fixed,  and  there  was  no  possible  way  of  fixing  them  or 
maintaining  them,  unless  you  have  some  way  of  having  them  fixed 
under  Government  control,  or  you  are  allowed  to  do  it  by  positive 
agreements.  It  never  has  been  possible.  It  never  could  be  possi- 
ble. We  have  never  succeeded  in  doing  so.  But  we  have,  by  this 
friendly  intercourse,  prevented  demoralization — sudden,  wild,  ex- 
treme fluctuations — destructive  competition  that  would  drive 
large  numbers  of  them  entirely  out  of  business,  and  that  would  be 
ruinous  to  the  customers  of  the  steel  people  who  had  large  stocks  of 
goods  on  hand  from  time  to  time,  and  which  would  spread  to  other 
lines  of  industry.  We  have  made  no  secret  about  it,  and  the  public 
has  known  exactly  what  we  have  done;  and  if  the  Department  of 
Justice,  for  instance,  or  the  President,  or  Congress,  should  say, 
"This  is  not  the  wise  thing  to  do  or  the  right  thing  to  do,"  you  may 
be  certain  it  would  not  be  continued  for  one  moment. 

Mr.  Beall.  As  I  understand  it,  you  wanted  to  avoid  destructive 
competition  on  the  one  side,  and  you  wanted  to  avoid  the  perils  and 
the  dangers  of  the  Sherman  antitrust  law  on  the  other  side? 

Mr.  Gary.  Of  monoply  on  the  other  side? 

Mr.  Beall.  Of  monopoly,  unlawful  restraint  of  trade;  and  you 
have  resorted  to  this  means  of  bringing  together  those  interested  in 
the  business  for  an  exchange  and  interchange  of  views  at  these 
dinners? 

Mr.  Gary.  Not  so  much  an  interchange  of  views  as  a  statement 
of  the  conditions  surrounding  each  one. 

Mr.  Beall.  I  will  ask  you  about  this  particular  dinner  of  Jan- 
uary ii,  1911. 

Mr.   Gary.  Of  course  the  proceedings  speak  for  themselves. 

Mr.  Beall.  Yes.  Was  not  the  purpose  of  that  dinner  to  arrive, 
directly  or  indirectly — probably  the  latter — at  an  understanding 
that  prices  would  not  be  reduced  or  lowered? 

Mr.  Gary.  Emphatically,  no;  it  was  not. 

Mr.  Beall.  Let  me  call  your  attention  to  some  of  the  things  that 
were  said. 

Mr.  Gary.  By  me? 

Mr.  Beall.  By  you  and  by  others  who  participated  in  the  dinner. 

Mr.  Gary.  Very  well. 


Trust  Methods  391 

Mr.  Beall.  And  I  would  like  to  have  your  interpretation  of  what 
it  means. 

Mr.   Gary.  What  is  the  date? 

Mr.  Beall.  January  n,   191 1. 

Mr.  Gary.  Very  well. 

Mr.  Beall.  Look  first  at  page  6,  about  the  middle  of  the  page. 
I  read  as  follows: 

At  this  particular  time  there  is  not  in  this  country  a  demand  for  more  than 
50  per  cent  of  the  total  producing  capacity  in  our  lines.  It  is  obvious  from  this 
statement  of  fact  that  there  is  not  enough  business  to  go  around  and  that  there 
is  no  possible  way  of  protecting  one  another  and  thereby  protecting  oneself 
except  to  submit  ourselves  to  the  conditions  as  they  exist  and  to  take  and  be 
satisfied  with  our  fair  proportion  of  the  business  which  is  offered.    [Applause.] 

What  did  that  mean,  Judge  Gary? 

Mr.  Gary.  It  meant  to  say  that  any  fair-minded  man,  knowing 
there  was  only  50  per  cent  business  as  compared  with  the  capacity, 
would  believe  it  to  be  for  his  own  interest  to  be  satisfied  with  his 
mills  running  at  one-half  their  total  capacity,  as  otherwise  he  would 
be  necessarily  involved  in  a  competition  that  meant  the  survival  of 
the  fittest,  every  one  struggling  to  get  more  than  50  per  cent  of 
capacity,  and  bringing  about  demoralization  and  ruin. 

Mr.  Beall.  At  that  time  were  the  mills  that  these  different  gen- 
tlemen represented  who  were  at  the  banquet,  running  only  50  per 
cent  of  their  capacity? 

Mr.  Gary.  No;  on  the  contrary  some  were  running,  as  usual, 
about  40  per  cent,  and  some  were  running  about  60  per  cent ;  and 
it  has  been  that  way  all  the  time,  more  or  less.  There  is  no  possible 
way  of  controlling.  Of  course,  that  is  my  advice.  I  wish  everyone 
would  recognize  the  fact  that  that  is  what  he  ought  to  do,  but  he  is 
not  willing  to  do  that.  He  is  under  no  obligation  to  do  that.  And 
you  will  see,  as  I  go  on,  that  I  state  clearly  under  no  circumstances 
would  I  bind  myself  to  do  or  not  to  do  anything;  that  everyone 
must  be  left  free  to  do  as  he  pleases.  That  I  understand  to  have 
been  the  position  of  the  Attorney  General  in  his  argument  before 
the  Supreme  Court  of  the  United  States,  that  the  law  does  not  com- 
pel people  to  compete.  If  everyone  leaves  himself  free  to  compete, 
then  he  is  living  up  to  the  requirements  of  the  law.  At  the  same 
time,  I  would  not  hesitate  to  advise  my  associates  to  be  satisfied 
with  their  fair  share  of  business.  That  advice  has  been  followed  to 
some  extent.  But,  as  no  one  was  bound  in  any  way,  never  had  to 
do  it,  they  did  not  live  up  to  the  principle.    That  is  the  trouble. 


39^  Industrial  Combinations  and  Trusts 

Mr.  Beall.  All  through  the  proceedings  of  that  dinner,  Judge, 
does  not  the  thought  run  that  all  those  who  are  present  are  in  honor 
bound  to  accept  and  to  abide  by  that  price? 

Mr.  Gary.  I  do  not  think  you  can  connect  the  two  statements. 

Mr.  Beall.  On  May  4,  191 1,  at  the  Waldorf,  in  New  York,  you 
had  a  banquet? 

Mr.  Lindabury.  Is  that  in  this  same  book? 

Mr.  Beall.  No;  it  is  in  a  different  book.    I  refer  to  page  27. 

Mr.  Lindabury.  That  is  the  last  meeting? 

Mr.   Beall.  It  is  May  4. 

Mr.   Lindabury.  Of   what   year? 

Mr.  Beall.  191 1. 

Mr.  Gary.  And  what  page  do  you  read  from? 

Mr.  Beall.  Page  27.    I  read  as  follows: 

You  know  I  do  not  say  that  for  the  purpose  of  deceiving  you  at  all  nor  for  any 
purpose  except  to  let  you  know  exactly  what  I  am  doing.  And,  therefore,  as  I 
have  said  before,  gentlemen,  we  come  together  upon  a  platform  that  involves 
the  honor  of  a  man,  which  is  far  better  and  far  higher  and  far  more  binding 
upon  us  than  any  contract  which  we  could  make. 

Mr.  Gary.  Yes.  Now,  I  would  think,  if  I  should  meet  you,  a 
competitor  of  mine,  on  the  street,  and  ask  you  what  prices  you  are 
charging  and  to  what  extent  you  are  running  your  mills,  and  I 
should  tell  you  what  I  was  doing,  both  of  us  being  perfectly  frank 
and  neighborly,  and  then  I  should  leave  you  and  go  to  one  of  your 
customers  and  offer  to  sell  him  goods  at  a  less  price  than  you  told  me 
you  were  selling  at,  that  would  be  most  dishonorable  conduct  on 
my  part,  and  that  I  would  have  a  reason  to  expect,  as  honorable 
men,  you  and  I  having  told  one  another  what  we  were  doing,  that 
we  would  not  go  and  do  something  to  the  contrary  of  that  to  the 
prejudice  of  either  one,  without  telling  him  so  frankly.  That  is 
what  I  meant  and  that  is  what  I  have  explained  from  time  to  time. 

Mr.  Beall.  Then  I  quote  further  from  this  speech  of  January  n, 
191 1,  on  page  7: 

I  say  in  this  presence  to  men  who  know  by  long  experience — men  who  know  to 
a  demonstration  that  what  I  speak  is  true  and  logical — that  we  have  something 
better  to  guide  and  control  us  in  our  business  methods  than  a  contract  which 
depends  upon  written  or  verbal  promises  with  a  penalty  attached. 

Now,  if  you  made  that  sort  of  a  contract,  you  would  violate  the 
Sherman  antitrust  law,  would  you  not? 
Mr.   Gary.  Yes,  we  would;  but  we  have  something  better. 


Trust  Methods 


393 


Mr.  Beall.  You  have  something  that  is  better  even  than  a  prom- 
ise in  writing,  with  a  penalty  attached? 

Mr.  Gary.  I  do  not  say  that  it  is  more  binding  than  a  contract. 
That  is  quite  a  different  thing. 

Mr.  Beall.  Something  better  to  guide  you.    You  say — 

We  have  something  better  to  guide  and  control  us  in  our  business  methods 
than  a  contract — 

Mr.  Lindabury.  Now,  will  you  let  Judge  Gary  tell  what  that  is? 
Mr.  Beall  (continuing): 

Than  a  contract  which  depends  upon  written  or  verbal  promises  with  a 
penalty  attached.  We  as  men,  as  gentlemen,  as  friends,  as  neighbors,  having 
been  in  close  communication  and  contact  during  the  last  few  years,  have  reached 
a  point  where  we  entertain  for  one  another  respect  and  affectionate  regard.  We 
have  reached  a  position  so  high  in  our  lines  of  activity  that  we  are  bound  to 
protect  one  another. 

Judge,  in  all  these  dinners,  in  all  these  speeches  made  at  this  ban- 
quet on  January  n,  191 1,  does  not  the  thought  run  through  there 
that  without  entering  into  any  written  obligation  or  contract,  or 
making  any  agreement  that  would  put  the  hand  of  the  Sherman  law 
on  you,  you  were  in  honor  bound  to  observe 

Mr.  Gary.  To  do  what? 

Mr.   Beall.  To  cooperate? 

Mr.  Gary.  Well. 

Mr.  Beall.  In  such  a  way  as  to  protect  each  other  against  any 
reduction  in  prices? 

Mr.  Gary.  Not  at  all.  It  does  not  mean  that  at  all;  not  at  all; 
because  we  had  no  fixed  prices.  We  have  never  said  that  our  prices 
would  be  a  certain  thing,  and  they  have  not.  Our  prices  have 
fluctuated  all  the  time.  There  has  never  been  the  time  that  our 
prices  remained  the  same,  or  have  been  all  alike;  never,  not  for  a 
single  day,  so  far  as  I  know.  We  have  attempted  in  this  way — I 
have  attempted,  I  will  say,  and  others  have  attempted  by  this  in- 
fluence^— to  prevent  this  utter  demoralization  which  results  from  a 
disposition  on  the  part  of  everyone  to  go  and  get  all  the  business  he 
can,  and  at  any  price  he  can,  regardless  of  whether  it  is  fair  and 
reasonable,  whether  it  is  below  cost  or  not,  whether  it  would  destroy 
his  neighbor  and  drive  him  out  of  business;  a  disposition  to  let  one 
another  know  what  we  are  doing  with  a  view  of  trying  to  persuade 
everyone  to  keep  the  price  up  to  what  he  thought  ought  to  be  rea- 
sonable and  fair.    Is  it  against  any  law  for  me  to  go  to  you,  a  com- 


394  Industrial  Combinations  and  Trusts 

petitor  in  business,  and  say  to  you,  "Your  prices,  I  think,  ought  to 
be  higher  than  they  arc,"  or  "ought  to  be  lower  than  they  are"? 
If  you  leave  yourself  free  to  make  them  as  you  please,  or  if  I  do,  we 
do  not  violate  the  law.  I  have  a  right  to  tell  you.  We  have  never 
said,  never  intimated,  that  the  prices  should  be  so  and  so,  and  each 
one  of  us  should  keep  these  prices;  never  directly  or  indirectly. 

Mr.  Beall.  Have  you  not  impressed  on  them  time  after  time 
that  it  would  be  the  grossest  breach  of  honor  for  them  to  cut  their 
prices  below  a  competitor? 

Mr.  Gary.  No,  I  have  not;  never  a  word.  You  will  never  find 
such  a  suggestion  as  that. 

Mr.  Beall.  I  read  from  page  7,  again: 

We  have  reached  a  position  so  high  in  our  lines  of  activity  that  we  are  bound 
to  protect  one  another;  and  when  a  man  reaches  a  position  where  his  honor  is  at 
stake,  where  even  more  than  life  itself  is  concerned,  where  he  can  not  act  or  fail 
to  act  except  with  a  distinct  and  clear  understanding  that  his  honor  is  involved, 
then  he  has  reached  a  position  that  is  more  binding  on  him  than  any  written  or 
verbal  contract.    [Applause.] 

Why  were  you  seeking  so  strenuously  to  impress  upon  them  that 
their  honor  was  involved  in  some  kind  of  way? 

Mr.  Gary.  So  that  we,  coming  together,  disclosing  our  business, 
telling  one  another  about  to  what  extent  we  are  running  our  mills, 
about  how  our  business  was  going  generally,  what  our  customers 
were,  what  our  difficulties  were,  having  made  those  full  disclosures, 
so  that  everyone  would  reach  the  decision,  if  possible,  that  he  ought 
not  to  do  a  mean  thing  in  the  trade,  in  competition;  in  other  words, 
so  that  competition  should  be  honorable,  decent,  and  reasonable,  as 
opposed  to  bitter,  hostile,  destructive  competition  such  as  used  to 
exist. 

Mr.  Beall.  Did  you  not  think  that  the  meanest  thing  that  any 
of  them  could  do  would  be  to  reduce  prices? 

Mr.  Gary.  I  should  think,  Mr.  Beall,  if  you  had  a  client  and  I 
had  a  client,  consulting  you  and  me  both  professionally,  going  to 
you  and  asking  you  what  you  would  charge  him,  and  you  told  him 
$100,  and  then  you  should  come  to  me  and  say,  "That  gentleman, 
my  old  client,  has  been  in  my  office  and  asked  me  how  much  I 
would  charge  him,  and  I  told  him  $100" — I  having  gotten  that  in- 
formation from  you,  I  should  think  if  I  should  say  to  him  when  he 
came  to  my  office,  he  believing  I  was  as  competent  as  you,  that  I 
would  do  it  for  $90,  that  would  be  dishonorable;  that  is  what  I 
think  about  it,  most  certainly,  unless  I  went  to  you  and  said:  "Now, 


Trust  Methods  395 

you  told  me  you  said  you  would  do  this  for  $100,  and  I  want  to  do 
it  for  less  than  that,  and  I  will  charge  him  only  $90." 

Mr.  Lindabury.  I  want  to  call  attention  to  the  fact  that  this 
was  simply  a  strenuous  endeavor  to  establish  the  golden  rule,  and 
that  it  ought  to  be  encouraged. 

Mr.  Beall.  The  steel  rule. 

Mr.  Lindabury.  No,  the  golden  rule. 

Mr.  Beall.  A  resort  to  moral  suasion.  I  quote  again  from 
page  9: 

Why  do  I  mention  these  things?  From  the  abundance  of  the  heart  the  mouth 
speaketh.  These  thoughts  in  my  mind,  in  my  heart,  force  expression.  I  deal  in 
frankness.  Why  is  it?  Why  are  these  thoughts  in  my  mind?  Why  do  they 
crowd  into  words?  Because  at  this  particular  time  I  am  anxious  that  no  man 
around  this  table,  no  one  connected  with  this  business  shall,  for  a  single  moment, 
forget  the  high  moral  obligation  he  is  under  toward  his  neighbor. 

Mr.  Lindabury.  That  is  right. 
Mr.  Beall  (continuing  reading): 

Because  if  it  was  the  last  word  I  would  have  the  privilege  of  saying  to  you,  I 
would  say,  with  all  my  might  and  with  all  the  emphasis  that  I  could  find  words 
to  express,  I  consider  it  of  the  highest  importance  at  this  particular  time  that 
every  one  of  us  should  have  a  keen  and  abiding  sense  of  the  personal  obligation 
which  he  has  toward  all  others  and  to  make  no  mistake  of  running  the  risk  of 
trespassing  within  the  domain  of  the  rights  of  his  neighbor,  who  has  given  his 
confidence  and  trust,  and  who  is  willing  at  all  times  to  put  within  the  knowledge 
and  therefore  more  or  less  under  the  charge  and  control  of  others  the  very 
direction  of  his  affairs. 


Mr.  Beall.  Mr.  Farrell  is,  I  believe,  president  of  the  United 
States  Steel  Corporation  now? 
Mr.  Gary.    Yes,  he  is. 
Mr.  Beall.  He  made  a  speech  that  night? 
Mr.  Gary.  I  believe  he  did. 
Mr.  Beall.  Let  me  quote  from  that.    I  read  from  page  14: 

I  understand  the  policy  of  the  corporation  to  be  to  cooperate  with  its  com- 
petitors in  the  effort  to  maintain  fair  prices 

Mr.  Gary.  Well,  that  means 

Mr.  Beall   (continuing): 

and  the  stability  of  business  conditions,  by  every  means  permissible  under  the 
laws  of  the  country  and  not  antagonistic  to  the  public  conscience. 

That  gives  you  the  full  quotation. 

Mr.  Gary.  Yes.    That  means  in  the  way  I  have  stated,  and  no 


396  Industrial  Combinations  and  Trusts 

other  way.  The  answer  to  your  inquiry  is  found  in  the  fact  that 
prices  have  not  been  maintained.  You  will  find  in  some  of  those 
speeches  a  statement  by  me,  perhaps  repeatedly,  that  I  have  never 
stood  for  unchanged  or  unchangeable  prices;  that  that  is  not  my 
position.  And  there  have  not  been  unchanged  prices.  They  have 
been  more  or  less  changed  all  the  time.  That  is  not  the  point.  The 
point  is  to  try  and  prevent  the  kind  of  bitter,  destructive,  unfair, 
and  unreasonable  competition  that  demoralizes  business,  and 
drives  to  destruction  many  of  the  operators,  of  the  manufacturers 
and  their  customers. 


Mr.  Beall.  Mr.  Willis  L.  King  spoke  also  at  this  last  banquet? 

Mr.  Gary.  Yes. 

Mr.  Beall.  Let  me  quote  something  from  him.  Who  is  Mr. 
King? 

Mr.  Gary.  Mr.  King  is  the  vice  president  and  general  manager 
of  the  Jones  &  Laughlin  Co.  of  Pittsburg. 

Mr.  Beall.  A  steel  manufacturer? 

Mr.  Gary.  Yes. 

Mr.  Beall.  Quoting  from  page  21,  he  said: 

I  think,  therefore,  to  talk  of  reducing  the  prices  ought  not  to  be  considered 
for  a  moment.  As  Judge  Gary  has  very  properly  said,  it  would  not  result  in 
good  to  anyone.  It  would  not  result  in  more  business  to  us,  it  would  not  do  the 
public  any  good;  therefore  I  hope  it  will  be  the  consensus  of  opinion  here  to-night 
that  we  will  maintain  the  present  prices,  which  are  fair  and  reasonable,  and 
await  with  patience  the  inevitable  result,  which  will  of  course  be  better  business, 
and  I  think  in  the  very  near  future. 

Mr.  Gary.  No  doubt  that  was  his  hope  and  his  wish  and  his 
advice,  but  it  was  not  binding,  and  therefore  was  not  fully  accepted 
nor  adopted. 

Mr.  Beall.  Was  it  not  the  consensus  of  opinion  there  that  night, 
Judge,  among  all  those  who  spoke? 

Mr.  Gary.  You  have  there  everything  that  was  said  by  all  who 
spoke,  and  speeches  speak  for  themselves. 

Mr.  Beall.  Probably  the  entire  speeches  will  not  be  in  the 
record,  but  you  were  there. 

Mr.  Gary.  They  are,  Mr.  Beall;  every  word  that  was  said. 

Mr.  Bartlett.  You  mean  in  that  book? 

Mr.  Gary.  Yes,  I  mean  in  this  pamphlet  of  January  11.  Every- 
thing that  was  said  at  the  dinner,  without  exception,  by  every 


Trust  Methods  397 

speaker  is  there;  not  a  word  is  left  out,  and  these  gentlemen  had  no 
opportunity  to  revise  their  speeches ;  not  a  particle  changed ;  nothing 
added;  nothing  left  out. 

Mr.  Beall.  Was  not  the  dominant  thought  running  through  all 
these  speeches  of  these  gentlemen  who  were  there  that  it  should  be 
the  consensus  of  opinion  among  them  that  there  should  be  no  low- 
ering of  prices? 

Mr.  Gary.  The  speeches  speak  for  themselves. 

Mr.  Beall.  You  have  read  them.    What  is  your  opinion? 

Mr.  Gary.  I  do  not  think  that  is  a  fair,  just  opinion  of  the 
speeches. 

Mr.  Beall.  That  is  the  very  reason  I  wanted  you  to  express 
your  opinion,  because  I  did  not  want  to  express  mine,  because  it 
might  not  be  fair. 


Mr.  Gary.  I  do  not  think  so,  although  I  feel  certain  that  it  was 
the  wish  and  the  hope  of  everyone  that  prices  would  not  be  reduced. 
Now,  it  would  be  very  strange  if  in  the  speeches  made  by  these  gen- 
tlemen, with  no  opportunity  to  prepare,  and  with  that  hope  and 
wish  in  their  minds,  they  would  use  expressions  which  you  would 
think  meant  that  it  was  intended  to  maintain  prices.  But  you  will 
not  find  in  any  of  the  meetings  any  agreement  of  the  kind.  I  have 
not  attempted  here  to  disguise  the  fact,  Mr.  Beall,  that  the  object  of 
these  meetings  was  to  get  between  the  extremes  of  the  restraint-of- 
trade  clause  and  the  monopoly  clause  and  in  this  way  to  prevent,  so 
far  as  we  could  legitimately,  a  demoralization  of  business  and  de- 
structive competition;  but  there  is  nothing  in  any  of  these  speeches 
to  indicate  that  there  was  any  agreement,  express  or  implied,  to  do 
or  not  to  do  a  thing,  any  suggestion  that  each  one  was  bound  to 
maintain  certain  prices,  or  to  fix  certain  prices,  or  anything  of  the 
sort.    The  contrary  of  that  was  the  intention. 

As  to  whether  or  not  this  is  a  good  thing  to  do,  as  to  whether  or 
not  this  is  good  morals,  as  to  whether  or  not  you  gentlemen  believe 
that  it  is  better  to  enter  into  a  destructive  competition  of  the  old 
kind  than  to  try  and  maintain  the  equilibrium  of  business  by  this 
kind  of  cooperation,  is  for  you  to  say.  I  am  very  sure  if  you  want  to 
take  the  responsibility  as  legislators  and  as  lawyers  and  judges,  if 
you  want  to  take  the  responsibility  or  if  the  Government  or  any- 
body else  in  authority  wishes  to  take  the  responsibility  of  saying 
it  is  better  to  enter  into  a  destructive  competition,  and  for  the  steel 


398  Industrial  Combinations  and  Trusts 

people  to  have  nothing  whatever  to  do  with  one  another,  not  even 
give  one  another  information  of  any  sort  or  description,  letting  the 
business  take  care  of  itself  and  allowing  the  strongest  to  survive 
and  the  weakest  to  go  down  and  the  general  demoralization  which 
would  naturally  result  in  business,  generally,  to  follow,  then  we 
have  nothing  to  say;  we  would  not  oppose  it  for  one  moment;  not 
a  moment.  We  have  done  what  we  have  considered  best  to  be  done 
for  the  interests  of  all  concerned,  and  within  the  lines  of  the  law  as 
we  understand  it. 

Mr.  Beall.  As  I  understand  it,  Judge,  you  are  frank  enough 
to  say  that  through  the  medium  of  these  dinners  you  have  sought 
to  accomplish  the  same  result  that  would  be  accomplished  by  mak- 
ing agreements  among  yourselves  that  would  be  unlwaful,1  to  a 
greater  or  less  degree? 

Mr.  Gary.  I  have  not  said  that,  but  I  have  said  that  we  have,  so 
far  as  we  could,  attempted  to  prevent  demoralization  and  destruc- 
tive competition.  We  have  not  been  successful,  but  we  have  been 
successful  to  a  large  extent. 

Mr.  Beall.  Quoting  now  from  Mr.  Felton,  on  page  22,  he  says: 

Now,  I  think  we  have  all  had  our  eyes  opened  since  the  first  meetings  that 
were  held  here,  and  I  hope  we  are  going  to  keep  our  eyes  open,  and  are  not  going 
to  shut  them  up  to  the  situation.  If  there  is  anybody  who  thinks  the  present 
business  situation  will  be  improved,  stimulated,  by  cutting  prices,  he  ought  to 
consider  just  one  branch  of  our  business;  he  should  look  at  the  facts  and  argue 
from  those  facts. 

Then  he  takes  up  the  pig  iron  situation. 
Mr.  Gary.  Yes. 

Mr.  Beall.  Who  is  Mr.  Topping,  whose  speech  appears  on 
page  23? 

Mr.  Gary.  He  is  chairman  of  the  Republic  Iron  &  Steel  Co. 


Mr.  Beall.  I  read  from  what  Mr.  Topping  said,  on  page  23: 

I  am  more  convinced  than  ever  that  any  efforts  at  this  time  to  reduce  prices 
with  a  view  to  stimulating  consumption  will  be  met  in  about  the  manner  that 
Mr.  Felton  has  illustrated. 

Mr.  Gary.  Who  says  that? 

Mr.  Beall.  Mr.  Topping.     He  continues: 

The  price  line  will  go  down  much  faster  than  the  production  line  will  go  up. 
1  Thus  in  original. — Ed. 


Trust  Methods  399 

Mr.  Gary.  He  has  evidently  changed  his  mind  recently. 

Mr.  Beall.  He  has  made  a  reduction  in  the  prices  of  the  products 
of  the  Republic  Iron  &  Steel  Co.? 

Mr.  Gary.  Yes;  and  for  the  announced  reason  that  some  of  the 
people  manufacturing  some  of  his  products  began  to  cut  their 
prices,  and,  of  course,  he  assumed  he  had  nothing  left  to  do  but  cut 
his.  Three  1  is  quite  a  difference  in  one  man  going  to  another  and 
saying  to  him,  "My  prices  are  so  and  so;"  and  then  going  out  and 
selling  at  a  lower  price,  and  on  another  occasion  going  to  his  neigh- 
bor and  saying,  "My  prices  are  so  and  so,  and  I  think  they  are  too 
high,  and  I  can  not  maintain  them  on  account  of  the  competition 
I  have  and  I  am  going  to  cut  them  to  suit  myself."  Then  it  is  not 
dishonorable  for  him  to  do  what  he  pleases.  But  I  do  not  think  it 
is  fair  or  honorable  for  business  competitors  to  represent  to  one 
another  that  they  are  doing  certain  things  which  are  entirely  con- 
trary to  the  facts ;  and  there  is  nothing  like  publicity  among  decent 
men — that  is,  the  disclosure  from  one  to  another  of  exactly  what 
they  are  doing — to  secure  a  reasonable  maintenance  of  prices.  Of 
course,  circumstances  arising  day  by  day  may  change  circumstances; 
but  in  the  main  the  prices  are  pretty  well  maintained. 

Mr.  Beall.  After  that  luncheon  you  held  a  few  days  ago,  you 
gave  out  a  statement? 

Mr.  Gary.  I  made  a  public  announcement  of  what  we  were  going 
to  do. 

Mr.  Beall.  Substantially,  that  it  was  the  opinion  of  the  gentle- 
men who  were  at  that  luncheon  that  the  prices  of  their  various 
products  should  be  reduced  to  meet  this  cut  made  by  the  Republic 
Steel  &  Iron  Co.? 

Mr.  Gary.  I  think  not.  If  you  have  got  it,  read  it,  and  I  think 
it  will  speak  for  itself. 

Mr.  Bartlett.  I  do  not  say  that  it  bears  that  out,  but  I  have 
what  purports  to  be  a  press  dispatch,  published  in  a  paper  in  Macon, 
Ga.,  and  I  will  read  you  what  is  said. 

Mr.  Young.  Will  you  not  speak  a  little  louder,  Judge? 

Mr.  Bartlett.  I  say  that  I  have  what  Judge  Gary  is  purported 
to  have  said  at  that  luncheon,  in  the  form  of  a  press  dispatch  dated 
June  4;  is  that  right? 

Mr.  Gary.  I  presume  that  is  right. 

Mr.  Bartlett.  I  cut  this  from  a  paper  published  in  Macon,  Ga., 
and  it  purports  to  be,  and  is,  a  press  dispatch. 
1  Thus  in  original. — Ed. 


400  Industrial  Combinations  and  Trusts 

Mr.  Gary.  I  think  I  can  tell  you,  if  you  will  read  it. 
Mr.  Bartlett.  I  will  read  this  part  of  it: 

Referring  to  the  bombshell  which  the  Republic  Co.  threw  into  the  steel 
market  by  reducing  prices,  Judge  Gary  said:  "We  are  confronted  with  a  very 
serious  and  disagreeable  problem.  It  is  not  for  me  to  criticize  men  nor  to  pass 
judgment  on  the  motives  of  men.  Whether  people  who  have  changed  their 
minds  suddenly  are  actuated  by  motives  of  cupidity  or  motives  of  necessity  is 
not  for  me  to  say.  One  thing  we  know,  that  one  of  the  leading  iron  and  steel 
companies  hitherto  joining  in  our  councils,  learning  from  us  our  intentions,  our 
business,  our  methods,  our  clients,  our  customers,  everything  of  benefit  and 
interest  for  one  to  know  concerning  his  neighbor,  has  suddenly,  for  reasons 
considered  good  by  those  in  charge,  given  notice  that  for  the  present  at  least  it 
is  not  desirable  to  cooperate  with  us." 

Mr.  Gary.  I  have  no  doubt  I  said  that,  in  substance. 
Mr.  Bartlett.  It  is  fair  to  quote  from  something  else  which  you 
are  purported  to  have  said.    It  refers  to  price  cutting: 

I  have  urged  you  to  remember,  and  I  again  call  attention  to  the  fact,  that 
when  you  make  substantial  reductions  in  your  prices,  if  you  reduce  to  a  price 
that  is  unfair  and  unreasonable  and  you  make  so  small  a  profit  that  it  does  not 
yield  you  a  fair  return  on  your  investment  and  your  risk,  you  at  least  place  for 
consideration  before  everyone  the  possible  necessity  of  reducing  the  cost  of 
production,  including  prominently,  if  not  principally,  the  wages  which  you  are 
paying,  or  may  be  allowed  to  pay,  to  the  man  or  the  men  in  your  employ.  Do 
not  forget  that  the  laboring  men — the  employees  of  the  corporations — have 
more  at  risk,  when  these  questions  are  considered  of  reducing  prices  below  what 
is  reasonable  and  fair,  than  the  employer.  You  have  no  right  to  run  the  risk  of 
being  compelled  to  put  their  wages  below  what  they  ought  to  be  unless  you  are 
driven  to  it,  and  I  hope,  under  the  present  circumstances,  gentlemen,  that  what- 
ever may  be  done,  or  whatever  may  happen  as  a  result  of  present  conditions, 
you  will  not  reduce  the  wages  of  your  employees  until  you  feel  it  is  an  absolute 
necessity  to  do  so. 

Mr.  Gary.  I  said  that.  I  believe  it.  I  think  you  will  find  at  one 
of  these  dinners  which  has  been  referred  to  the  principal  topic  for 
discussion — the  substance  of  most  of  the  speeches,  at  least — related 
to  the  welfare  of  employees.  I  am  very  sure  it  did.  I  do  not  think 
the  question  of  prices  was  hardly  referred  to. 

Mr.  Beall.  In  this  statement,  Judge,  you  said: 

It  was  the  unanimous  opinion  that  cooperation,  as  heretofore  fully  explained, 
should  be  continued. 

I  quote  that  from  the  New  York  World. 

Mr.  Gary.  I  think  that  is  true. 

Mr.  Beall.  This  article  in  the  World  says,  further: 

Opinions  were  expressed  that  recent  developments  seem  to  require  some 
change  in  prices.    Subsidiary  companies  of  the  United  States  Steel  Corporation 


hrary 
Trust  Methods  401 

have  decided  to  make  adjustments  to  become  effective  June  i,  and  it  is  be- 
lieved these  will  be  generally  followed. 

Do  you  know  whether  the  action  of  the  United  States  Steel  Corpo- 
ration has  been  generally  followed  or  not  by  competing  concerns? 

Mr.  Gary.  I  think  it  has,  and  perhaps  a  little  more  than  followed 
by  some.  I  do  not  see  how  any  of  the  others  could  keep  their 
prices  up  after  we  reduced  ours.  As  I  said  before,  it  is  pretty  easy 
to  reduce  prices.  That  is,  if  even  a  small  manufacturer,  if  he  is 
a  substantial  competitor,  reduces  his  prices,  of  course  the  others 
reduce  theirs. 

Mr.  Beall.  On  page  24  there  is  a  little  statement  from  you. 

Mr.  Gary.  Of  what  meeting? 

Mr.  Beall.  This  is  all  of  the  meeting  of  January  n,  191 1.  I 
read  as  follows: 

I  only  want  to  call  attention  to  the  exact  facts  here  so  as  to  make  it  certain 
that  none  of  us  will  unintentionally  misrepresent  the  facts.  '  In  respect  to  some 
commodities,  I  am  sure  at  the  present  time  they  are  too  low.  One  other  thought. 
I  agree  with  all  that  has  been  said  by  Mr.  Topping  and  Mr.  Felton  and  others 
concerning  Mr.  Farrell.  You  know  about  how  proud  I  am  of  the  fact  that  he 
is  not  only  loyal,  but  that  he  is  enthusiastic  with  reference  to  this  policy  of 
maintenance  of  higher  prices,  particularly  such  cooperation  as  advances  the 
interests  of  all  concerned. 

Mr.  Lindabury.  That  is  in  the  middle  of  the  sentence,  where 
you  have  stopped. 

Mr.  Beall.  I  will  read  on: 

And  yet  we  may  unintentionally,  by  inference,  some  of  us,  in  referring  to  him 
do  an  injustice  to  Mr.  Corey,  and  as  he  is  not  present,  I  think  I  am  justified  in 
saying  that  none  of  you  I  am  sure  will  say  nor  do  you  think  that  in  a  single 
instance  did  Mr.  Corey  ever  give  you  his  word  concerning  what  he  intended  to 
do  without  keeping  that  word  to  the  letter. 

Mr.  Gary.  I  believe  there  is  one  word  there  that  was  not  in  the 
speech,  but  I  do  not  know  that  it  is  at  all  important. 

Mr.  Beall.  What  word  is  that? 

Mr.  Gary.  That  is  the  word  "higher."  It  reads:  "The  mainte- 
nance of  higher  prices." 

Mr.  Beall.  It  says:  "With  reference  to  this  policy  of  mainte- 
nance of  higher  prices. " 

Mr.  Gary.  Yes.  I  do  not  know  what  that  would  mean  or  could 
mean,  and  I  do  not  believe  I  ever  said  it.  I  believe  it  is  either  a 
typographical  error  or  a  stenographic  error,  because  you  will  find 
the  contrary  of  that  expression  in  many  of  my  statements. 


402  Industrial  Combinations  and  Trusts 

Mr.  Beall.  Who  is  Mr.  I.  A.  Kelly? 

Mr.  Gary.  He  is  the  president  of  some  company,  I  have  for- 
gotten the  name,  the  Ashland  Steel  Co.,  of  Ashland,  Ky. 
Mr.  Beall.  At  the  top  of  page  46  he  says: 

I  heartily  cooperate  in  everything  that  has  been  said  here  to-night,  and  so  far 
as  our  company  is  concerned  we  are  ready  and  willing  to  still  cooperate  to  do 
what  we  can  to  maintain  prices.    [Applause.] 

Do  you  not  think  that  running  through  all  these  speeches  that 
were  made  at  the  banquet  the  idea  was  to  bring  about  such  a  condi- 
tion, without  going  into  any  iron-clad  agreement,  to  bring  about  a 
condition  where  no  man  who  attended  would  feel  in  honor  that  he 
could  take  any  action  tending  to  the  lowering  of  prices  in  steel 
products?  Do  you  not  think  that  is  just  as  effective  as  an  agree- 
ment signed  and  sealed  by  all  those  who  attended  the  dinner? 

Mr.  Gary.  It  is  not,  or  anything  like  that.  It  is  not  effective; 
it  is  influential.  These  meetings  were  calculated  to  influence  people 
to  maintain  their  prices.  There  is  no  doubt  of  that,  but  as  I  under- 
stand the  vice  of  the  law  is  in  obligating  people  to  maintain  prices, 
in  preventing  absolute  freedom  on  the  part  of  each  one  to  do  as  he 
pleases.  I  think  the  vice  in  conduct  which  is  unlawful  is  found  in 
the  release  of  one's  freedom  to  do  exactly  as  he  pleases.  It  was 
intended  to  influence  people  so  far  as  we  legitimately  could  to 
maintain  fair  prices,  each  one  for  himself  using  his  best  judgment, 
after  full  knowledge  of  the  business  of  all. 

You  will  see  where  I  have  said  at  different  times  exactly  what  I 
had  in  mind  what  we  would  do  and  what  we  would  not  do.  That 
was  the  cardinal  doctrine. 

Mr.  Littleton.  Did  I  understand  you  to  say  that  you  considered 
that  the  Sherman  antitrust  law  did  not  mean  a  contract  or  agree- 
ment unless  it  was  one  that  was  enforcible  by  either  party? 

Mr.  Gary.  No;  I  would  not  say  that.  No;  I  think  an  agreement 
to  maintain  prices  even  though  you  could  not  enforce  it  would  be 
contrary  to  the  Sherman  antitrust  law;  but  I  think  that  if  two  or 
three  of  us  should  come  together  and  say:  "We  will  tell  you  what 
we  are  doing  all  the  time,  we  will  not  agree,  but  we  will  not  change 
it,  and  if  we  change  we  will  notify  you.  We  will  not  put  ourselves 
in  a  position  where  our  freedom  to  do  as  we  please  is  in  any  respect 
abridged,  but  we  would  like  to  have  fair  prices  maintained.  We 
think  it  is  for  the  best  interests  of  all  concerned,  ourselves  and  our 
employees  and  customers,  to  maintain  fair  prices  and  to  prevent 


Trust  Methods  403 

resort  to  tricks  in  the  trade  calculated  to  unfairly  and  indecently 
get  business  away,  which  always  results  in  destructive  competition." 
I  think  that  is  all  perfectly  legitimate  in  view  of  the  Sherman  anti- 
trust law.  That  has  been  my  idea.  I  will  be  very  glad  to  have  the 
opinion  of  Mr.  Littleton  or  Judge  Bartlett  or  anyone  else  on  that 
subject.  Certainly,  if  I  thought  it  was  wrong  or  that  we  were 
doing  anything  wrong,  I  would  not  continue  it  for  one  moment. 

Mr.  Littleton.  Suppose,  Judge  Gary,  that  we  agree  that  the 
Sherman  antitrust  law  would  forbid  an  agreement  to  maintain 
prices,  if  you  had  entered  into  one  at  one  of  these  dinners.  I  think 
that  could  not  be  disputed? 

Mr.  Gary.  No,  sir. 

Mr.  Littleton.  Now,  suppose,  Judge  Gary,  you  came  together 
and  by  foreclosure  of  the  situation  each  to  the  other  by  this  mutual 
and  well-intentioned  cooperation  of  which  you  speak  the  same 
result  is  accomplished,  to  wit,  the  maintenance  of  prices,  the 
object  which  the  Sherman  antitrust  law  sought  to  prohibit  has  been 
accomplished,  has  it  not? 

Mr.  Gary.  No,  sir;  I  do  not  think  it  has. 

Mr.  Littleton.  You  think  that  the  Sherman  antitrust  law  was 
directed  at  the  agreement  rather  than  the  result  of  the  agreement? 

Mr.  Gary.  I  think  so;  I  do,  really. 

Take  the  case  of  two  blacksmiths,  for  instance,  and  they  come 
down  the  sidewalk  together  in  a  village  town  every  day ;  one  lives  on 
one  side  of  the  street  and  the  other  on  the  other  side,  and  one  says 
to  the  other:  "What  are  you  charging  for  shoeing  horses?  I  am 
charging  a  certain  price."  The  other  says:  "Well,  I  am  charging 
that  same  price,"  and  that  is  all  that  takes  place,  and  the  result 
it *  that  they  maintain  those  prices.  I  do  not  believe  that  that  would 
be  a  violation  of  the  Sherman  antitrust  law.  It  does  not  seem  to 
me  that  it  is  intended  to  prevent  that.  The  result  is  just  the  same 
as  though  they  had  agreed. 

Mr.  Littleton.  But  would  not  that  be  because  there  was  no 
agreement  either  express  or  implied  between  them? 

Mr.  Gary.  Perhaps  it  would. 

Mr.  Littleton.  If,  by  foreclosure  of  the  situation  of  each  to  the 
other,  and  if  by  this  mutual  and,  I  will  say,  well-intentioned  cooper- 
ation and  meeting  together,  and  if,  by  the  experience  of  conference, 
each  understanding  the  other,  it  might  not  come  to  a  common  point 
with  a  common  purpose,  each — obliged  by  his  natural  sense  of 
1  Thus  in  original. — Ed. 


404  Industrial  Combinations  and  Trusts 

honor — should  feel  obliged  to  maintain  prices,  does  not  that  bring 
about  the  same  result  as  if  there  were  an  agreement? 

Mr.  Gary.  No;  it  does  not  bring  about  the  same  result. 

Mr.  Littleton.  So  far  as  the  effect  on  the  trade  is  concerned? 

Mr.  Gary.  No;  it  docs  not  by  a  good  deal. 

Mr.  Littleton.  Perhaps  I  did  not  add  one  condition;  suppose 
they  did,  then  it  does  accomplish  the  same  purpose? 

Mr.  Gary.  Of  course  if  you  and  I,  knowing  exactly  what  the 
other  is  doing  from  time  to  time,  continue  to  do  that  same  thing, 
then  the  result  is  the  same  as  if  you  and  I  agree  to  do  that. 

Mr.  Littleton.  You  will  recall — I  do  not  recall  it  exactly — one 
of  Mr.  Lincoln's  favorite  illustrations  that  if  four  men  in  four 
counties  each  whittled  on  a  piece  of  wood  for  four  or  five  days  and 
met  at  the  county  seat  and  put  their  pieces  of  wood  on  a  table  and 
they  all  fitted  with  each  other  that  he  would  ask  nobody  to  furnish 
him  with  any  evidence  of  the  fact  that  they  had  had  an  agreement 
in  advance  that  they  would  all  whittle  in  a  certain  direction  and 
that  they  would  meet  there,  and  he  thought  that  was  the  highest 
authority. 

Mr.  Gary.  I  am  not  familiar  with  that.  I  am  certain  in  our  case 
the  sticks  do  not  fit.  They  never  have  fitted;  they  have  never 
been  like  anything  else. 

The  Chairman.  I  will  call  your  attention  to  a  statement  pur- 
porting to  come 

Mr.  Gary  (interposing).  The  intention  has  been  and  the  effect 
has  been  to  maintain  reasonable  pricse  1  more  or  less  all  the  time  on 
the  part  of  those  connected  with  it.  I  have  hoped  that  it  would 
be  very  extensive  and  at  some  times  I  have  thought  it  was,  but  the 
results  have  not  been  like  they  would  have  been  if  there  had  been 
an  agreement  with  a  penalty  such  as  used  to  be  made  before  I 
came  into  the  business  at  all. 

Exhibit  6 

of  america  2 

The  Government  alleges  that: 
.  .  Among  other  methods  of  harassing  such  independents  defend- 
ant used  the  following:  It  would  delay  forwarding  bills  of  lading,  and 

1  Thus  in  original. — Ed. 

2  United  States  of  America  v. of  America.     Petition  in  Equity,  In 

the Court  of  the  United  States  for  the District  of ,  pp.  23-26. 


Trust  Methods  405 

would  refuse  to  supply  independents  further  with  metal,  sometimes 
abruptly  ceasing  entirely  to  ship  metal  without  warning  or  state- 
ment of  excuse  of  any  kind,  or  causing  its  controlled  companies  to 
do  so,  so  that  the  concern  affected  was  unable  to  fill  its  orders. 

It  discriminated  against  independents  as  to  price  for  the  crude 

needed,  so  that  they  were  unable  successfully  to  bid  against 

or  compete  with  the  favored  industries  and  obtain  a  living  margin 
of  profit. 

It  frequently  refused  to  sell metal  to  those  desiring  to  enter 

the  business  of  manufacturing  goods,  thereby  preventing 

an  expansion  of  the  industry  and  restraining  trade  therein. 

It  refused  to  sell  to  others  desiring  to  enter  said  field  any 

metal  unless  they  would  agree  not  to  engage  in  any  line  in  any 
manner  competing  with  the  lines  of  the  defendant  and  its  allied 
companies. 

It  refused  to  guarantee  quality,  and  at  times  delivered  to  com- 
peting plants  metal  which  was  known  to  be  worthless  and  which 
had  been  rejected  by  plants  allied  to  defendant. 

It  demanded  to  know  the  prices  at  which  independent  compet- 
itors had  bid  on  or  taken  contracts  for  work  to  be  done  before  it 
would  furnish  them  the  metal  required  to  fill  the  contract  or  even 
quote  prices  of  same,  and  it  would  impart  the  knowledge  thus 
obtained  to  an  allied  company  competing  with  such  purchaser. 

It  represented  and  intimated  to  independent  concerns  and  cus- 
tomers that,  unless  they  dealt  with  defendant  or  its  allied  companies 

as  to  crude ,  their  supply  thereof  would  be  cut  off,  or  they 

would  be  unable  to  get  their  entire  supply  at  reasonable  prices. 

It  represented  and  intimated  to  dealers  in  and  consumers  of 

wares  that,  unless  they  dealt  with  defendant  or  its  allied 

companies,  their  supply  of  the  manufactured  product  would  be 
cut  off. 

It  represented  and  intimated  to  consumers  that,  if  they  did  not 
buy  of  the  defendant  or  of  its  allied  companies,  they  would  be 
buying  of  manufacturers  who  would  be  without  the  metal  to  com- 
plete their  contracts,  and  intimated  to  consumers  that  a  new 

agreement,  such  as  had  been  in  effect,  would  be  put  into  effect 
again,  thereby  leaving  defendant  the  only  source  of  supply  within 
the  United  States  at  any  price;  and  it  was  especially  by  this  con- 
duct that  big  consumers  were  driven  away  from  competing  manu- 
facturers. 

One  competitor  who  was  preparing  to  enlarge  his  plant  was 


406  Industrial  Combinations  and  Trusts 

threatened  by  defendant  that  if  he  did  so  he  would  be  put  out  of 
business  (the  defendant  being  at  said  time  the  sole  available  source 
of  supply  for  the  raw  material  needed). 

It,  either  directly  or  through  its  controlled  companies,  bid  on 
supplies  for  the  best  customers  of  the  independent  competing  com- 
panies at  such  prices  that  it  was  impossible  for  such  companies, 
who  were  compelled  to  purchase  their  raw  material  from  defendant, 
to  successfully  compete  therewith. 

Defendant  claimed  to  have  gone  into  the utensils  business 

for  the  purpose  of  increasing  the  market  for  its sheets  faster 

than  it  was  being  developed.  Yet,  when  it  entered  upon  this 
branch  of  the  industry  it  purposely  was  subjecting  the  then  makers 
of  such  utensils  to  delays  on  shipments;  and  petitioner  alleges  that 
having  seen  that  such  manufacture  was  growing  into  a  profitable 
business,  it  entered  therein  for  the  purpose  of  monopolizing  it, 
along  with  the  other  branches  of  the industry. 

Certain  large  customers  of  defendant  for  a  time  made  only  novel- 
ties of  ,  in  which  business  neither  defendant  nor  an  allied 

company  was  engaged.     During  said  period  they  had  no  trouble 

about  getting  from  defendant  a  sufficient  supply  of  of  any 

desired  kind  and  specifications.  Later  some  of  these  firms  en- 
tered into  the  business  of  making utensils  of .  There- 
upon delays  and  harassments  in  obtaining  metal  from  defendants 
were  begun  and  continued.  At  or  about  the  time  some  of  such 
manufacturers  entered  into  said  competitive  business,  defendant 
threatened  that  if  they  engaged  therein  they  might  expect  loss. 
Such  threats  were  consummated  by  the  refusal  to  furnish  metal 
in  such  a  manner  and  in  such  quantities  and  of  such  quality  as 
to  enable  such  firms  to  take  or  properly  complete  orders,  and  thus 
some  were  compelled  to  abandon  said  business. 

It  required  some  customers  to  make  contracts  not  to  engage  in 
competitive  lines  of  manufacture,  and  also  at  times  required  an 
agreement  to  maintain  certain  fixed  prices,  or  prices  above  a  desig- 
nated minimum,  on  manufactured  articles  in  sale  and  resale,  as  a 
condition  precedent  to  receiving  metal. 


CHAPTER  XIII 

RECENT  TRUST  DECISIONS 

NOTE 

The  prominence  given  to  the  Standard  Oil  and  Tobacco  decisions 
tended  to  render  insignificant  some  of  the  decisions  handed  down 
against  other  combinations,  and  to  obscure,  the  fact  that  many  of 
these  decisions  are  really  of  considerable  importance.  It  is  even 
possible,  that,  whatever  may  be  the  effect  of  the  two  former  notable 
decisions,  the  decrees  in  some  of  the  minor  cases  may  have  the 
effect  of  restoring  in  the  case  of  such  combinations,  conditions 
substantially  the  same  as  the  status  quo  before  their  formation. 
Therefore,  in  the  scope  of  this  chapter  there  have  been  included 
excerpts  from  other  decrees  besides  those  against  the  Standard  Oil 
and  the  American  Tobacco  Companies. — Ed. 

Exhibit  i 
decree  against  the  standard  oil  company  1 
Mr.  Chdzf  Justice  White  delivered  the  opinion  of  the  Court. 


The  debates  show  that  doubt  as  to  whether  there  was  a  common 
law  of  the  United  States  which  governed  the  subject  in  the  absence 
of  legislation  was  among  the  influences  leading  to  the  passage  of  the 
act.  They  conclusively  show,  however,  that  the  main  cause  which 
led  to  the  legislation  was  the  thought  that  it  was  required  by  the 
economic  condition  of  the  times,  that  is,  the  vast  accumulation  of 
wealth  in  the  hands  of  corporations  and  individuals,  the  enormous 
development  of  corporate  organization,  the  facility  for  combina- 
tion which  such  organizations  afforded,  the  fact  that  the  facility 
was  being  used,  and  that  combinations  known  as  trusts  were  being 
multiplied,  and  the  wide-spread  impression  that  their  power  had 
been  and  would  be  exerted  to  oppress  individuals  and  injure  the 
public  generally.  Although  debates  may  not  be  used  as  a  means 
for  interpreting  a  statute  (United  States  v.  Trans-Missouri  Freight 

1 221  U.S.  I. 
407 


408  Industrial  Combinations  and  Trusts 

Association,  166  U.  S.  318,  and  cases  cited)  that  rule  in  the  nature 
of  things  is  not  violated  by  resorting  to  debates  as  a  means  of  as- 
certaining the  environment  at  the  time  of  the  enactment  of  a  par- 
ticular law,  that  is,  the  history  of  the  period  when  it  was  adopted. 


In  view  of  the  common  law  and  the  law  in  this  country  as  to 
restraint  of  trade,  which  we  have  reviewed,  and  the  illuminating 
effect  which  that  history  must  have  under  the  rule  to  which  we  have 
referred,  we  think  it  results: 

a.  That  the  context  manifests  that  the  statute  was  drawn  in  the 
light  of  the  existing  practical  conception  of  the  law  of  restraint  of 
trade,  because  it  groups  as  within  that  class,  not  only  contracts 
which  were  in  restraint  of  trade  in  the  subjective  sense,  but  all  con- 
tracts or  acts  which  theoretically  were  attempts  to  monopolize,  yet 
which  in  practise  had  come  to  be  considered  as  in  restraint  of  trade 
in  a  broad  sense. 

b.  That  in  view  of  the  many  new  forms  of  contracts  and  combina- 
tions which  were  being  evolved  from  existing  enocomic  conditions, 
it  was  deemed  essential  by  an  all-embracing  enumeration  to  make 
sure  that  no  form  of  contract  or  combination  by  which  an  undue 
restraint  of  interstate  or  foreign  commerce  was  brought  about  could 
save  such  restraint  from  condemnation.  The  statute  under  this  view 
evidenced  the  intent  not  to  restrain  the  right  to  make  and  enforce 
contracts,  whether  resulting  from  combination  or  otherwise,  which 
did  not  unduly  restrain  interstate  or  foreign  commerce,  but  to  pro- 
tect that  commerce  from  being  restrained  by  methods,  whether 
old  or  new,  which  would  constitute  an  interference  that  is  an  undue 
restraint. 

c.  And  as  the  contracts  or  acts  embraced  in  the  provision  were 
not  expressly  defined,  since  the  enumeration  addressed  itself  simply 
to  classes  of  acts,  those  classes  being  broad  enough  to  embrace 
every  conceivable  contract  or  combination  which  could  be  made 
concerning  trade  or  commerce  or  the  subjects  of  such  commerce, 
and  thus  caused  any  act  done  by  any  of  the  enumerated  methods 
anywhere  in  the  whole  field  of  human  activity  to  be  illegal  if  in 
restraint  of  trade,  it  inevitably  follows  that  the  provision  necessarily 
called  for  the  exercise  of  judgment  which  required  that  some  stand- 
ard should  be  resorted  to  for  the  purpose  of  determining  whether 
the  prohibitions  contained  in  the  statute  had  or  had  not  in  any  given 
case  been  violated.    Thus  not  specifying  but  indubitably  contem- 


Recent  Trust  Decisions  409 

plating  and  requiring  a  standard,  it  follows  that  it  was  intended 
that  the  standard  of  reason  which  had  been  applied  at  the  common 
law  and  in  this  country  in  dealing  with  subjects  of  the  character 
embraced  by  the  statute,  was  intended  to  be  the  measure  used  for 
the  purpose  of  determining  whether  in  a  given  case  a  particular 
act  had  or  had  not  brought  about  the  wrong  against  which  the 
statute  provided. 


Second.  The  contentions  of  the  parties  as  to  the  meaning  of  the  stat- 
ute and  the  decisions  of  this  court  relied  upon  concerning  those  con- 
tentions. 

In  substance,  the  propositions  urged  by  the  Government  are 
reducible  to  this:  That  the  language  of  the  statute  embraces  every 
contract,  combination,  etc.,  in  restraint  of  trade,  and  hence  its 
text  leaves  no  room  for  the  exercise  of  judgment,  but  simply  im- 
poses the  plain  duty  of  applying  its  prohibitions  to  every  case 
within  its  literal  language.  The  error  involved  lies  in  assuming  the 
matter  to  be  decided.  This  is  true  because  as  the  acts  which  may 
come  under  the  classes  stated  in  the  first  section  and  the  restraint 
of  trade  to  which  that  section  applies  are  not  specifically  enumer- 
ated or  defined,  it  is  obvious  that  judgment  must  in  every  case  be 
called  into  play  in  order  to  determine  whether  a  particular  act  is 
embraced  within  the  statutory  classes,  and  whether  if  the  act  is 
within  such  classes  its  nature  or  effect  causes  it  to  be  a  restraint  of 
trade  within  the  intendment  of  the  act.  To  hold  to  the  contrary 
would  require  the  conclusion  either  that  every  contract,  act  or  com- 
bination of  any  kind  or  nature,  whether  it  operated  a  restraint  on 
trade  or  not,  was  within  the  statute,  and  thus  the  statute  would  be 
destructive  of  all  right  to  contract  or  agree  or  combine  in  any  respect 
whatever  as  to  subjects  embraced  in  interstate  trade  or  commerce, 
or  if  this  conclusion  were  not  reached,  then  the  contention  would 
require  it  to  be  held  that  as  the  statute  did  not  define  the  things  to 
which  it  related  and  excluded  resort  to  the  only  means  by  which  the 
acts  to  which  it  relates  could  be  ascertained — the  light  of  reason — 
the  enforcement  of  the  statute  was  impossible  because  of  its  uncer- 
tainty. The  merely  generic  enumeration  which  the  statute  makes 
of  the  acts  to  which  it  refers  and  the  absence  of  any  definition  of 
restraint  of  trade  as  used  in  the  statute  leaves  room  for  but  one  con- 
clusion, which  is,  that  it  was  expressly  designed  not  to  unduly 
limit  the  application  of  the  act  by  precise  definition,  but  while 


410  Industrial  Combinations  and  Trusts 

clearly  fixing  a  standard,  that  is,  by  defining  the  ulterior  bound- 
aries which  could  not  be  transgressed  with  impunity,  to  leave  it  to 
be  determined  by  the  light  of  reason,  guided  by  the  principles  of 
law  and  the  duty  to  apply  and  enforce  the  public  policy  embodied 
in  the  statute,  in  every  given  case  whether  any  particular  act  or 
contract  was  within  the  contemplation  of  the  statute. 

But,  it  is  said,  persuasive  as  these  views  may  be,  they  may  not  be 
here  applied,  because  the  previous  decisions  of  this  court  have  given 
to  the  statute  a  meaning  which  expressly  excludes  the  construction 
which  must  result  from  the  reasoning  stated.  The  cases  are  United 
States  v.  Freight  Association,  166  U.  S.  290,  and  United  States  v. 
Joint  Traffic  Association,  171  U.  S.  505.  Both  the  cases  involved  the 
legality  of  combinations  or  associations  of  railroads  engaged  in 
interstate  commerce  for  the  purpose  of  controlling  the  conduct  of 
the  parties  to  the  association  or  combination  in  many  particulars. 
The  association  or  combination  was  assailed  in  each  case  as  being 
in  violation  of  the  statute.  It  was  held  that  they  were.  It  is  un- 
doubted that  in  the  opinion  in  each  case  general  language  was 
made  use  of,  which,  when  separated  from  its  context,  would  justify 
the  conclusion  that  it  was  decided  that  reason  could  not  be  resorted 
to  for  the  purpose  of  determining  whether  the  acts  complained  of 
were  within  the  statute.  It  is,  however,  also  true  that  the  nature 
and  character  of  the  contract  or  agreement  in  each  case  was  fully 
referred  to  and  suggestions  as  to  their  unreasonableness  pointed 
out  in  order  to  indicate  that  they  were  within  the  prohibitions  of 
the  statute.  As  the  cases  cannot  by  any  possible  conception  be 
treated  as  authoritative  without  the  certitude  that  reason  was 
resorted  to  for  the  purpose  of  deciding  them,  it  follows  as  a  matter 
of  course  that  it  must  have  been  held  by  the  light  of  reason,  since 
the  conclusion  could  not  have  been  otherwise  reached,  that  the 
assailed  contracts  or  agreements  were  within  the  general  enumera- 
tion of  the  statute,  and  that  their  operation  and  effect  brought  about 
the  restraint  of  trade  wliich  the  statute  prohibited.  This  being 
inevitable,  the  deduction  can  in  reason  only  be  this:  That  in  the 
cases  relied  upon  it  having  been  found  that  the  acts  complained 
of  were  within  the  statute  and  operated  to  produce  the  injuries 
which  the  statute  forbade,  that  resort  to  reason  was  not  permissible 
in  order  to  allow  that  to  be  done  which  the  statute  prohibited.  This 
being  true,  the  rulings  in  the  cases  relied  upon  when  rightly  ap- 
preciated were  therefore  this  and  nothing  more:  That  as  consider- 
ing the  contracts  or  agreements,  their  necessary  effect  and  the  char- 


Recent  Trust  Decisions  411 

acter  of  the  parties  by  whom  they  were  made,  they  were  clearly 
restraints  of  trade  within  the  purview  of  the  statute,  they  could 
not  be  taken  out  of  that  category  by  indulging  in  general  reasoning 
as  to  the  expediency  or  non-expediency  of  having  made  the  con- 
tracts or  the  wisdom  or  want  of  wisdom  of  the  statute  which  pro- 
hibited their  being  made.  That  is  to  say,  the  cases  but  decided 
that  the  nature  and  character  of  the  contracts,  creating  as  they  did 
a  conclusive  presumption  which  brought  them  within  the  statute, 
such  result  was  not  to  be  disregarded  by  the  substitution  of  a 
judicial  appreciation  of  what  the  law  ought  to  be  for  the  plain  ju- 
dicial duty  of  enforcing  the  law  as  it  was  made. 

But  aside  from  reasoning  it  is  true  to  say  that  the  cases  relied 
upon  do  not  when  rightly  construed  sustain  the  doctrine  contended 
for  is  established  by  all  of  the  numerous  decisions  of  this  court  which 
have  applied  and  enforced  the  Anti-trust  Act,  since  they  all  in  the 
very  nature  of  things  rest  upon  the  premise  that  reason  was  the 
guide  by  which  the  provisions  of  the  act  were  in  every  case  inter- 
preted. Indeed  intermediate  the  decision  of  the  two  cases,  that  is, 
after  the  decision  in  the  Freight  Association  Case  and  before  the 
decision  in  the  Joint  Traffic  Case,  the  case  of  Hopkins  v.  United 
States,  171  U.  S.  578,  was  decided,  the  opinion  being  delivered  by 
Mr.  Justice  Peckham,  who  wrote  both  the  opinions  in  the  Freight 
Association  and  the  Joint  Traffic  cases.  And,  referring  in  the 
Hopkins  Case  to  the  broad  claim  made  as  to  the  rule  of  interpreta- 
tion announced  in  the  Freight  Association  Case,  it  was  said  (p.  592) : 
"To  treat  as  condemned  by  the  act  all  agreements  under  which,  as 
a  result,  the  cost  of  conducting  an  interstate  commercial  business 
may  be  increased  would  enlarge  the  application  of  the  act  far  be- 
yond the  fair  meaning  of  the  language  used.  There  must  be  some 
direct  and  immediate  effect  upon  interstate  commerce  in  order  to 
come  within  the  act."  And  in  the  Joint  Traffic  Case  this  statement 
was  expressly  reiterated  and  approved  and  illustrated  by  example; 
like  limitation  on  the  general  language  used  in  Freight  Association 
and  Joint  Traffic  Cases  is  also  the  clear  result  of  Bement  v.  National 
Harrow  Co.,  186  U.  S.  70,  92,  and  especially  of  Cincinnati  Packet 
Co.  v.  Bay,  200  U.  S.  179. 

If  the  criterion  by  which  it  is  to  be  determined  in  all  cases  whether 
every  contract,  combination,  etc.,  is  a  restraint  of  trade  within  the 
intendment  of  the  law,  is  the  direct  or  indirect  effect  of  the  acts 
involved,  then  of  course  the  rule  of  reason  becomes  the  guide,  and 
the  construction  which  we  have  given  the  statute,  instead  of  being 


412  Industrial  Combinations  and  Trusts 

refuted  by  the  cases  relied  upon,  is  by  those  cases  demonstrated  to 
be  correct.  This  is  true,  because  as  the  construction  which  we  have 
deduced  from  the  history  of  the  act  and  the  analysis  of  its  text  is 
simply  that  in  every  case  where  it  is  claimed  that  an  act  or  acts  are 
in  violation  of  the  statute  the  rule  of  reason,  in  the  light  of  the  prin- 
ciples of  law  and  the  public  policy  which  the  act  embodies,  must  be 
applied.  From  this  it  follows,  since  that  rule  and  the  result  of  the 
test  as  to  direct  or  indirect,  in  their  ultimate  aspect,  come  to  one 
and  the  same  thing,  that  the  difference  between  the  two  is  therefore 
only  that  which  obtains  between  things  which  do  not  differ  at  all. 

If  it  be  true  that  there  is  this  identity  of  result  between  the  rule 
intended  to  be  applied  in  the  Freight  Association  Case,  that  is,  the 
rule  of  direct  and  indirect,  and  the  rule  of  reason  which  under  the 
statute  as  we  construe  it  should  be  here  applied,  it  may  be  asked 
how  was  it  that  in  the  opinion  in  the  Freight  Association  Case  much 
consideration  was  given  to  the  subject  of  whether  the  agreement  or 
combination  which  was  involved  in  that  case  could  be  taken  out  of 
the  prohibitions  of  the  statute  upon  the  theory  of  its  reasonableness. 
The  question  is  pertinent  and  must  be  fully  and  frankly  met,  for 
if  it  be  now  deemed  that  the  Freight  Association  Case  was  mistak- 
enly decided  or  too  broadly  stated,  the  doctrine  which  it  announced 
should  be  either  expressly  overruled  or  limited. 

The  confusion  which  gives  rise  to  the  question  results  from  failing 
to  distinguish  between  the  want  of  power  to  take  a  case  which  by 
its  terms  or  the  circumstances  which  surrounded  it,  considering 
among  such  circumstances  the  character  of  the  parties,  is  plainly 
within  the  statute,  out  of  the  operation  of  the  statute  by  resort  to 
reason  in  effect  to  establish  that  the  contract  ought  not  to  be  treated 
as  within  the  statute,  and  the  duty  in  every  case  where  it  becomes 
necessary  from  the  nature  and  character  of  the  parties  to  decide 
whether  it  was  within  the  statute  to  pass  upon  that  question  by  the 
light  of  reason.  This  distinction,  we  think,  serves  to  point  out 
what  in  its  ultimate  conception  was  the  thought  underlying  the 
reference  to  the  rule  of  reason  made  in  the  Freight  Association  Case, 
especially  when  such  reference  is  interpreted  by  the  context  of  the 
opinion  and  in  the  light  of  the  subsequent  opinion  in  the  Hopkins 
Case  and  in  Cincinnati  Packet  Company  v.  Bay,  200  U.  S.  179. 

And  in  order,  not  in  the  slightest  degree  to  be  wanting  in  frank- 
ness, we  say  that  in  so  far,  however,  as  by  separating  the  general 
language  used  in  the  opinions  in  the  Freight  Association  and  Joint 
Traffic  cases  from  the  context  and  the  subject  and  parties  with 


Recent  Trust  Decisions  413 

which  the  cases  were  concerned,  it  may  be  conceived  that  the  lan- 
guage referred  to  conflicts  with  the  construction  which  we  give  the 
statute,  they  are  necessarily  now  limited  and  qualified.  We  see  no 
possible  escape  from  this  conclusion  if  we  are  to  adhere  to  the  many 
cases  decided  in  this  court  in  which  the  Anti-trust  Law  has  been 
applied  and  enforced  and  if  the  duty  to  apply  and  enforce  that  law 
in  the  future  is  to  continue  to  exist.  The  first  is  true,  because  the 
construction  which  we  now  give  the  statute  does  not  in  the  slightest 
degree  conflict  with  a  single  previous  case  decided  concerning  the 
Anti-trust  Law  aside  from  the  contention  as  to  the  Freight  Associa- 
tion and  Joint  Traffic  cases,  and  because  every  one  of  those  cases 
applied  the  rule  of  reason  for  the  purpose  of  determining  whether 
the  subject  before  the  court  was  within  the  statute.  The  second  is 
also  true,  since,  as  we  have  already  pointed  out,  unaided  by  the 
light  of  reason  it  is  impossible  to  understand  how  the  statute  may 
in  the  future  be  enforced  and  the  public  policy  which  it  establishes 
be  made  efficacious. 


Giving  to  the  facts  just  stated,  the  weight  which  it  was  deemed 
they  were  entitled  to,  in  the  light  afforded  by  the  proof  of  other 
cognate  facts  and  circumstances  the  court  below  held  that  the 
acts  and  dealings  established  by  the  proof  operated  to  destroy  the 
" potentiality  of  competition"  which  otherwise  would  have  ex- 
isted to  such  an  extent  as  to  cause  the  transfers  of  stock  which  were 
made  to  the  New  Jersey  corporation  and  the  control  which  resulted 
over  the  many  and  various  subsidiary  corporations  to  be  a  com- 
bination or  conspiracy  in  restraint  of  trade  in  violation  of  the 
first  section  of  the  act,  but  also  to  be  an  attempt  to  monopolize  and 
a  monopolization  bringing  about  a  perennial  violation  of  the  second 
section. 

We  see  no  cause  to  doubt  the  correctness  of  these  conclusions, 
considering  the  subject  from  every  aspect,  that  is,  both  in  view 
of  the  facts  established  by  the  record  and  the  necessary  operation 
and  effect  of  the  law  as  we  have  construed  it  upon  the  inferences 
deducible  from  the  facts,  for  the  following  reasons: 

a.  Because  the  unification  of  power  and  control  over  petroleum 
and  its  products  which  was  the  inevitable  result  of  the  combining 
in  the  New  Jersey  corporation  by  the  increase  of  its  stock  and  the 
transfer  to  it  of  the  stocks  of  so  many  other  corporations,  aggregat- 
ing so  vast  a  capital,  gives  rise,  in  and  of  itself,  in  the  absence  of 


414  Industrial  Combinations  and  Trusts 

countervailing  circumstances,  to  say  the  least,  to  the  prima  facie 
presumption  of  intent  and  purpose  to  maintain  the  dominancy  over 
the  oil  industry,  not  as  a  result  of  normal  methods  of  industrial 
development,  but  by  new  means  of  combination  which  were  re- 
sorted to  in  order  that  greater  power  might  be  added  than  would 
otherwise  have  arisen  had  normal  methods  been  followed,  the 
whole  with  the  purpose  of  excluding  others  from  the  trade  and  thus 
centralizing  in  the  combination  a  perpetual  control  of  the  move- 
ments of  petroleum  and  its  products  in  the  channels  of  interstate 
commerce. 

b.  Because  the  prima  facie  presumption  of  intent  to  restrain 
trade,  to.monopolize  and  to  bring  about  monopolization  resulting 
from  the  act  of  expanding  the  stock  of  the  New  Jersey  corporation 
and  vesting  it  with  such  vast  control  of  the  oil  industry,  is  made 
conclusive  by  considering,  1,  the  conduct  of  the  persons  or  corpora- 
tions who  were  mainly  instrumental  in  bringing  about  the  extension 
of  power  in  the  New  Jersey  corporation  before  the  consummation 
of  that  result  and  prior  to  the  formation  of  the  trust  agreements  of 
1879  and  1882 ;  2,  by  considering  the  proof  as  to  what  was  done  under 
those  agreements  and  the  acts  which  immediately  preceded  the 
vesting  of  power  in  the  New  Jersey  corporation  as  well  as  by  weigh- 
ing the  modes  in  which  the  power  vested  in  that  corporation  has 
been  exerted  and  the  results  which  have  arisen  from  it. 

Recurring  to  the  acts  done  by  the  individuals  or  corporations  who 
were  mainly  instrumental  in  bringing  about  the  expansion  of  the 
New  Jersey  corporation  during  the  period  prior  to  the  formation 
of  the  trust  agreements  of  1879  and  1882,  including  those  agree- 
ments, not  for  the  purpose  of  weighing  the  substantial  merit  of 
the  numerous  charges  of  wrongdoing  made  during  such  period, 
but  solely  as  an  aid  for  discovering  intent  and  purpose,  we  think 
no  disinterested  mind  can  survey  the  period  in  question  without 
being  irresistibly  driven  to  the  conclusion  that  the  very  genius 
for  commercial  development  and  organization  which  it  would  seem 
was  manifested  from  the  beginning  soon  begot  an  intent  and  pur- 
pose to  exclude  others  which  was  frequently  manifested  by  acts 
and  dealings  wholly  inconsistent  with  the  theory  that  they  were 
made  with  the  single  conception  of  advancing  the  development  of 
business  power  by  usual  methods,  but  which  on  the  contrary  neces- 
sarily involved  the  intent  to  drive  others  from  the  field  and  to  ex- 
clude them  from  their  right  to  trade  and  thus  accomplish  the 
mastery  which  was  the  end  in  view.    And,  considering  the  period 


Recent  Trust  Decisions  415 

from  the  date  of  the  trust  agreements  of  1879  and  1882,  up  to  the 
time  of  the  expansion  of  the  New  Jersey  corporation,  the  gradual 
extension  of  the  power  over  the  commerce  in  oil  which  ensued, 
the  decision  of  the  Supreme  Court  of  Ohio,  the  tardiness  or  reluc- 
tance in  conforming  to  the  commands  of  that  decision,  the  method 
first  adopted  and  that  which  finally  culminated  in  the  plan  of  the 
New  Jersey  corporation,  all  additionally  serve  to  make  manifest  the 
continued  existence  of  the  intent  which  we  have  previously  indi- 
cated and  which  among  other  things  impelled  the  expansion  of 
the  New  Jersey  corporation.  The  exercise  of  the  power  which 
resulted  from  that  organization  fortifies  the  foregoing  conclusions, 
since  the  development  which  came,  the  acquisition  here  and  there 
which  ensued  of  every  efficient  means  by  which  competition  could 
have  been  asserted,  the  slow  but  resistless  methods  which  followed 
by  which  means  of  transportation  were  absorbed  and  brought 
under  control,  the  system  of  marketing  which  was  adopted  by 
which  the  country  was  divided  into  districts  and  the  trade  in  each 
district  in  oil  was  turned  over  to  a  designated  corporation  within 
the  combination  and  all  others  were  excluded,  all  lead  the  mind  up 
to  a  conviction  of  a  purpose  and  intent  which  we  think  is  so  certain 
as  practically  to  cause  the  subject  not  to  be  within  the  domain  of 
reasonable  contention. 

The  inference  that  no  attempt  to  monopolize  could  have  been 
intended,  and  that  no  monopolization  resulted  from  the  acts  com- 
plained of,  since  it  is  established  that  a  very  small  percentage  of 
the  crude  oil  produced  was  controlled  by  the  combination,  is 
unwarranted.  As  substantial  power  over  the  crude  product  was 
the  inevitable  result  of  the  absolute  control  which  existed  over  the 
refined  product,  the  monopolization  of  the  one  carried  with  it  the 
power  to  control  the  other,  and  if  the  inferences  which  this  situation 
suggests  were  developed,  which  we  deem  it  unnecessary  to  do,  they 
might  well  serve  to  add  additional  cogency  to  the  presumption 
of  intent  to  monopolize  which  we  have  found  arises  from  the  un- 
questioned proof  on  other  subjects. 

We  are  thus  brought  to  the  last  subject  which  we  are  called  upon 
to  consider,  viz: 

Fourth.  The  remedy  to  be  administered. 

It  may  be  conceded  that  ordinarily  where  it  was  found  that 
acts  had  been  done  in  violation  of  the  statute,  adequate  measure 
of  relief  would  result  from  restraining  the  doing  of  such  acts  in 
the  future.    Swift  v.  United  States,  196  U.  S.  375.    But  in  a  case 


4i  6  Industrial  Combinations  and  Trusts 

like  this,  where  the  condition  which  has  been  brought  about  in 
violation  of  the  statute,  in  and  of  itself,  is  not  only  a  continued 
attempt  to  monopolize,  but  also  a  monopolization,  the  duty  to 
enforce  the  statute  requires  the  application  of  broader  and  more 
controlling  remedies.  As  penalties  which  are  not  authorized  by 
law  may  not  be  inflicted  by  judicial  authority,  it  follows  that  to 
meet  the  situation  with  which  we  are  confronted  the  application  of 
remedies  two-fold  in  character  becomes  essential:  ist.  To  forbid  the 
doing  in  the  future  of  acts  like  those  which  we  have  found  to  have 
been  done  in  the  past  which  would  be  violative  of  the  statute.  2d. 
The  exertion  of  such  measure  of  relief  as  will  effectually  dissolve 
the  combination  found  to  exist  in  violation  of  the  statute,  and  thus 
neutralize  the  extension  and  continually  operating  force  which  the 
possession  of  the  power  unlawfully  obtained  has  brought  and  will 
continue  to  bring  about. 

In  applying  remedies  for  this  purpose,  however,  the  fact  must 
not  be  overlooked  that  injury  to  the  public  by  the  prevention  of  an 
undue  restraint  on,  or  the  monopolization  of  trade  or  commerce 
is  the  foundation  upon  which  the  prohibitions  of  the  statute  rest, 
and  moreover  that  one  of  the  fundamental  purposes  of  the  statute 
is  to  protect,  not  to  destroy,  rights  of  property. 

Exhibit  2. 
decree  against  the  american  tobacco  company.1 
Mr.  Chief  Justice  White  delivered  the  opinion  of  the  Court. 

.  .  While  it  is  argued  on  the  one  hand  that  the  forms  by  which 
various  properties  were  acquired  in  view  of  the  letter  of  the  act 
exclude  many  of  the  assailed  transactions  from  condemnation, 
it  is  yet  urged  that  giving  to  the  act  the  broad  construction  which 
it  should  rightfully  receive,  whatever  may  be  the  form,  no  condem- 
nation should  follow,  because  looking  at  the  case  as  a  whole,  every 
act  assailed  is  shown  to  have  been  but  a  legitimate  and  lawful  result 
of  the  exertion  of  honest  business  methods  brought  into  play  for  the 
purpose  of  advancing  trade  instead  of  with  the  object  of  obstructing 
and  restraining  the  same.  But  the  difficulties  which  arise,  from 
the  complexity  of  the  particular  dealings  which  are  here  involved 
and  the  situation  which  they  produce,  we  think  grows  out  of  a 

1 221  U.  S.  106. 


Recent  Trust  Decisions  417 

plain  misconception  of  both  the  letter  and  spirit  of  the  Anti-trust 
Act.  We  say  of  the  letter,  because  while  seeking  by  a  narrow  rule 
of  the  letter  to  include  things  which  it  is  deemed  would  otherwise 
be  excluded,  the  contention  really  destroys  the  great  purpose  of 
the  act,  since  it  renders  it  impossible  to  apply  the  law  to  a  multitude 
of  wrongful  acts,  which  would  come  within  the  scope  of  its  remedial 
purposes  by  resort  to  a  reasonable  construction,  although  they 
would  not  be  within  its  reach  by  a  too  narrow  and  unreasonable 
adherence  to  the  strict  letter.  This  must  be  the  case  unless  it  be 
possible  in  reason  to  say  that  for  the  purpose  of  including  one  class 
of  acts  which  would  not  otherwise  be  embraced  a  literal  construction 
although  in  conflict  with  reason  must  be  applied  and  for  the  pur- 
pose of  including  other  acts  which  would  not  otherwise  be  embraced 
a  reasonable  construction  must  be  resorted  to.  That  is  to  say 
two  conflicting  rules  of  construction  must  at  one  and  the  same  time 
be  applied  and  adhered  to. 

The  obscurity  and  resulting  uncertainty  however,  is  now  but 
an  abstraction  because  it  has  been  removed  by  the  consideration 
which  we  have  given  quite  recently  to  the  construction  of  the 
Anti-trust  Act  in  the  Standard  Oil  Case.  In  that  case  it  was  held, 
without  departing  from  any  previous  decision  of  the  court  that  as 
the  statute  had  not  defined  the  words  restraint  of  trade,  it  became 
necessary  to  construe  those  words,  a  duty  which  could  only  be 
discharged  by  a  resort  to  reason.  We  say  the  doctrine  thus  stated 
was  in  accord  with  all  the  previous  decisions  of  this  court,  despite 
the  fact  that  the  contrary  view  was  sometimes  erroneously  attrib- 
uted to  some  of  the  expressions  used  in  two  prior  decisions  (the 
Trans-Missouri  Freight  Association  and  Joint  Traffic  cases,  166  U.  S. 
290  and  171  U.  S.  505.)  That  such  view  was  a  mistaken  one  was 
fully  pointed  out  in  the  Standard  Oil  Case  and  is  additionally  shown 
by  a  passage  in  the  opinion  in  the  Joint  Traffic  Case  as  follows  (171 
U.  S.  568):  "The  act  of  Congress  must  have  a  reasonable  construc- 
tion, or  else  there  would  scarcely  be  an  agreement  or  contract 
among  business  men  that  could  not  be  said  to  have,  indirectly  or 
remotely,  some  bearing  on  interstate  commerce,  and  possibly  to 
restrain  it."  Applying  the  rule  of  reason  to  the  construction  of  the 
statute,  it  was  held  in  the  Standard  Oil  Case  that  as  the  words 
"  restraint  of  trade  "  at  common  law  and  in  the  law  of  this  country 
at  the  time  of  the  adoption  of  the  Anti-trust  Act  only  embraced 
acts  or  contracts  or  agreements  or  combinations  which  operated 
to  the  prejudice  of  the  public  interests  by  unduly  restricting  compe- 


4i 8  Industrial  Combinations  and  Trusts 

tition  or  unduly  obstructing  the  due  course  of  trade  or  which, 
either  because  of  their  inherent  nature  or  effect  or  because  of  the 
evident  purpose  of  the  acts,  etc.,  injuriously  restrained  trade,  that 
the  words  as  used  in  the  statute  were  designed  to  have  and  did  have 
but  a  like  significance.  It  was  therefore  pointed  out  that  the 
statute  did  not  forbid  or  restrain  the  power  to  make  normal  and 
usual  contracts  to  further  trade  by  resorting  to  all  normal  methods, 
whether  by  agreement  or  otherwise,  to  accomplish  such  purpose. 
In  other  words,  it  was  held,  not  that  acts  which  the  statute  pro- 
hibited could  be  removed  from  the  control  of  its  prohibitions  by  a 
finding  that  they  were  reasonable,  but  that  the  duty  to  interpret 
which  inevitably  arose  from  the  general  character  of  the  term 
restraint  of  trade  required  that  the  words  restraint  of  trade  should 
be  given  a  meaning  which  would  not  destroy  the  individual  right 
to  contract  and  render  difficult  if  not  impossible  any  movement 
of  trade  in  the  channels  of  interstate  commerce — the  free  move- 
ment of  which  it  was  the  purpose  of  the  statute  to  protect.  The 
soundness  of  the  rule  that  the  statute  should  receive  a  reasonable 
construction,  after  further  mature  deliberation,  we  see  no  reason 
to  doubt.  Indeed,  the  necessity  for  not  departing  in  this  case 
from  the  standard  of  the  rule  of  reason  which  is  universal  in  its 
application  is  so  plainly  required  in  order  to  give  effect  to  the 
remedial  purposes  which  the  act  under  consideration  contemplates, 
and  to  prevent  that  act  from  destroying  all  liberty  of  contract 
and  all  substantial  right  to  trade,  and  thus  causing  the  act  to  be 
at  war  with  itself  by  annihilating  the  fundamental  right  of  freedom 
to  trade  which,  on  the  very  face  of  the  act, it  was  enacted  to  preserve, 
is  illustrated  by  the  record  before  us.  In  truth,  the  plain  demon- 
stration which  this  record  gives  of  the  injury  which  would  arise 
from  and  the  promotion  of  the  wrongs  which  the  statute  was  in- 
tended to  guard  against  which  would  result  from  giving  to  the 
statute  a  narrow,  unreasoning  and  unheard  of  construction,  as 
illustrated  by  the  record  before  us,  if  possible  serves  to  strengthen 
our  conviction  as  to  the  correctness  of  the  rule  of  construction,  the 
rule  of  reason,  which  was  applied  in  the  Standard  Oil  Case,  the 
application  of  which  rule  to  the  statute  we  now,  in  the  most  un- 
equivocal terms,  reexpress  and  re-affirm. 

Coming  then  to  apply  to  the  case  before  us  the  act  as  interpreted 
in  the  Standard  Oil  and  previous  cases,  all  the  difficulties  suggested 
by  the  mere  form  in  which  the  assailed  transactions  are  clothed 
become  of  no  moment.    This  follows  because  although  it  was  held 


Recent  Trust  Decisions  419 

in  the  Standard  Oil  Case  that,  giving  to  the  statute  a  reasonable 
construction,  the  words  "  restraint  of  trade  "  did  not  embrace  all 
those  normal  and  usual  contracts  essential  to  individual  freedom 
and  the  right  to  make  which  were  necessary  in  order  that  the 
course  of  trade  might  be  free,  yet,  as  a  result  of  the  reasonable  con- 
struction which  was  affixed  to  the  statute,  it  was  pointed  out  that 
the  generic  designation  of  the  first  and  second  sections  of  the  law, 
when  taken  together,  embraced  every  conceivable  act  which  could 
possibly  come  within  the  spirit  or  purpose  of  the  prohibitions  of 
the  law,  without  regard  to  the  garb  in  which  such  acts  were  clothed. 
That  is  to  say,  it  was  held  that  in  view  of  the  general  language 
of  the  statute  and  the  public  policy  which  it  manifested,  there  was 
no  possibility  of  frustrating  that  policy  by  resorting  to  any  disguise 
or  subterfuge  of  form,  since  resort  to  reason  rendered  it  impossible 
to  escape  by  any  indirection  the  prohibitions  of  the  statute. 

Considering  then  the  undisputed  facts  which  we  have  previously 
stated,  it  remains  only  to  determine  whether  they  establish  that 
the  acts,  contracts,  agreements,  combinations,  etc.,  which  were 
assailed  were  of  such  an  unusual  and  wrongful  character  as  to 
bring  them  within  the  prohibitions  of  the  law.  That  they  were,  in 
our  opinion,  so  overwhelmingly  results  from  the  undisputed  facts 
that  it  seems  only  necessary  to  refer  to  the  facts  as  we  have  stated 
them  to  demonstrate  the  correctness  of  this  conclusion.  Indeed,  the 
history  of  the  combination  is  so  replete  with  the  doing  of  acts 
which  it  was  the  obvious  purpose  of  the  statute  to  forbid,  so  demon- 
strative of  the  existence  from  the  beginning  of  a  purpose  to  acquire 
dominion  and  control  of  the  tobacco  trade,  not  by  the  mere  exertion 
of  the  ordinary  right  to  contract  and  to  trade,  but  by  methods 
devised  in  order  to  monopolize  the  trade  by  driving  competitors 
out  of  business,  which  were  ruthlessly  carried  out  upon  the  assump- 
tion that  to  work  upon  the  fears  or  play  upon  the  cupidity  of 
competitors  would  make  success  possible.  We  say  these  conclu- 
sions are  inevitable,  not  because  of  the  vast  amount  of  property 
aggregated  by  the  combination,  not  because  alone  of  the  many  cor- 
porations which  the  proof  shows  were  united  by  resort  to  one 
device  or  another.  Again,  not  alone  because  of  the  dominion  and 
control  over  the  tobacco  trade  which  actually  exists,  but  because 
we  think  the  conclusion  of  wrongful  purpose  and  illegal  combina- 
tion is  overwhelmingly  established  by  the  following  considerations: 
a.  By  the  fact  that  the  very  first  organization  or  combination  was 
impelled  by  a  previously  existing  fierce  trade  war,  evidently  in- 


420  Industrial  Combinations  and  Trusts 

spired  by  one  or  more  of  the  minds  which  brought  about  and 
became  parties  to  that  combination,  b.  Because,  immediately 
after  that  combination  and  the  increase  of  capital  which  followed, 
the  acts  which  ensued  justify  the  inference  that  the  intention 
existed  to  use  the  power  of  the  combination  as  a  vantage  ground 
to  further  monopolize  the  trade  in  tobacco  by  means  of  trade 
conflicts  designed  to  injure  others,  either  by  driving  competitors 
out  of  the  business  or  compelling  them  to  become  parties  to  a 
combination — a  purpose  whose  execution  was  illustrated  by  the  plug 
war  which  ensued  and  its  results,  by  the  snuff  war  which  followed 
and  its  results,  and  by  the  conflict  which  immediately  followed  the 
entry  of  the  combination  in  England  and  the  division  of  the  world's 
business  by  the  two  foreign  contracts  which  ensued,  c  By  the 
ever-present  manifestation  which  is  exhibited  of  a  conscious  wrong- 
doing by  the  form  in  which  the  various  transactions  were  em- 
bodied from  the  beginning,  ever  changing  but  ever  in  substance 
the  same.  Now  the  organization  of  a  new  company,  now  the  control 
exerted  by  the  taking  of  stock  in  one  or  another  or  in  several,  so 
as  to  obscure  the  result  actually  attained,  nevertheless  uniform, 
in  their  manifestations  of  the  purpose  to  restrain  others  and  to 
monopolize  and  retain  power  in  the  hands  of  the  few  who,  it  would 
seem,  from  the  beginning  contemplated  the  mastery  of  the  trade 
which  practically  followed,  d.  By  the  gradual  absorption  of  control 
over  all  the  elements  essential  to  the  successful  manufacture  of 
tobacco  products,  and  placing  such  control  in  the  hands  of  seem- 
ingly independent  corporations  serving  as  perpetual  barriers  to 
the  entry  of  others  into  the  tobacco  trade,  e.  By  persistent  ex- 
penditure of  millions  upon  millions  of  dollars  in  buying  out  plants, 
not  for  the  purpose  of  utilizing  them,  but  in  order  to  close  them  up 
and  render  them  useless  for  the  purposes  of  trade.  /.  By  the 
constantly  recurring  stipulations,  whose  legality,  isolatedly  viewed, 
we  are  not  considering,  by  which  numbers  of  persons,  whether 
manufacturers,  stockholders  or  employees,  were  required  to  bind 
themselves,  generally  for  long  periods,  not  to  compete  in  the 
future.  Indeed,  when  the  results  of  the  undisputed  proof  which  we 
have  stated  are  fully  apprehended,  and  the  wrongful  acts  which 
they  exhibit  are  considered,  there  comes  inevitably  to  the  mind 
the  conviction  that  it  was  the  danger  which  it  was  deemed  would 
arise  to  individual  liberty  and  the  public  well-being  from  acts  like 
those  which  this  record  exhibits,  which  led  the  legislative  mind  to 
conceive  and  to  enact  the  Anti-trust  Act,  considerations  which  also 


Recent  Trust  Decisions  421 

serve  to  clearly  demonstrate  that  the  combination  here  assailed 
is  within  the  law  as  to  leave  no  doubt  that  it  is  our  plain  duty  to 
apply  its  prohibitions. 

In  stating  summarily,  as  we  have  done,  the  conclusions  which,  in 
our  opinion,  are  plainly  deducible  from  the  undisputed  facts,  we 
have  not  paused  to  give  the  reasons  why  we  consider,  after  great 
consideration,  that  the  elaborate  arguments  advanced  to  give  a 
different  complexion  to  the  case  are  wholly  devoid  of  merit.  We 
do  not,  for  the  sake  of  brevity,  moreover,  stop  to  examine  and 
discuss  the  various  propositions  urged  in  the  argument  at  bar 
for  the  purpose  of  demonstrating  that  the  subject-matter  of  the 
combination  which  we  find  to  exist  and  the  combination  itself  are 
not  within  the  scope  of  the  Anti-trust  Act  because  when  rightly 
considered  they  are  merely  matters  of  intrastate  commerce  and 
therefore  subject  alone  to  state  control.  We  have  done  this  because 
the  want  of  merit  in  all  the  arguments  advanced  on  such  subjects 
is  so  completely  established  by  the  prior  decisions  of  this  court,  as 
pointed  out  in  the  Standard  Oil  Case,  as  not  to  require  restatement. 

Leading  as  this  does  to  the  conclusion  that  the  assailed  combina- 
tion in  all  its  aspects — that  is  to  say,  whether  it  be  looked  at  from 
the  point  of  view  of  stock  ownership  or  from  the  standpoint  of  the 
principal  corporation  and  the  accessory  or  subsidiary  corporations 
viewed  independently,  including  the  foreign  corporations  in  so  far 
as  by  the  contracts  made  by  them  they  became  cooperators  in 
the  combination — comes  within  the  prohibitions  of  the  first  and 
second  sections  of  the  Anti-trust  Act,  it  remains  only  finally  to 
consider  the  remedy  which  it  is  our  duty  to  apply  to  the  situation 
thus  found  to  exist. 

The  remedy. 

Our  conclusion  being  that  the  combination  as  a  whole,  involving 
all  its  cooperating  or  associated  parts,  in  whatever  form  clothed, 
constitutes  a  restraint  of  trade  within  the  first  section,  and  an  at- 
tempt to  monopolize  or  a  monopolization  within  the  second  section 
of  the  Anti-trust  Act,  it  follows  that  the  relief  which  we  are  to  afford 
must  be  wider  than  that  awarded  by  the  lower  court,  since  that 
court  merely  decided  that  certain  of  the  corporate  defendants  con- 
stituted combinations  in  violation  of  the  first  section  of  the  act, 
because  of  the  fact  that  they  were  formed  by  the  union  of  previously 
competing  concerns  and  that  the  other  defendants  not  dismissed 
from  the  action  were  parties  to  such  combinations  or  promoted 
their  purposes.    We  hence,  in  determining  the  relief  proper  to  be 


422  Industrial  Combinations  and  Trusts 

given,  may  not  model  our  action  upon  that  granted  by  the  court 
below,  but  in  order  to  enable  us  to  award  relief  coterminous  with 
the  ultimate  redress  of  the  wrongs  which  we  find  to  exist,  we  must 
approach  the  subject  of  relief  from  an  original  point  of  view.  Such 
subject  necessarily  takes  a  two-fold  aspect — the  character  of  the 
permanent  relief  required  and  the  nature  of  the  temporary  relief 
essential  to  be  appl:ed  pending  the  working  out  of  permanent 
relief  in  the  event  lhat  it  be  found  that  it  is  impossible  under  the 
situation  as  it  now  exists  to  at  once  rectify  such  existing  wrongful 
condition.  In  considering  the  subject  from  both  these  aspects 
three  dominant  influences  must  guide  our  action:  i.  The  duty  of 
giving  complete  and  efficacious  effect  to  the  prohibitions  of  the 
statute;  2,  the  accomplishing  of  this  result  with  as  little  injury  as 
possible  to  the  interest  of  the  general  public;  and,  3,  a  proper  regard 
for  the  vast  interests  of  private  property  which  may  have  become 
vested  in  many  persons  as  a  result  of  the  acquisition  either  by  way 
of  stock  ownership  or  otherwise  of  interests  in  the  stock  or  securities 
of  the  combination  without  any  guilty  knowledge  or  intent  in  any 
way  to  become  actors  or  participants  in  the  wrongs  which  we  find  to 
have  inspired  and  dominated  the  combination  from  the  beginning. 
Mindful  of  these  considerations  and  to  clear  the  way  for  their 
application  we  say  at  the  outset  without  stopping  to  amplify  the 
reasons  which  lead  us  to  that  conclusion,  we  think  that  the  court 
below  clearly  erred  in  dismissing  the  individual  defendants,  the 
United  Cigar  Stores  Company,  and  the  foreign  corporations  and 
their  subsidiary  corporations. 

Looking  at  the  situation  as  we  have  hitherto  pointed  it  out,  it 
involves  difficulties  in  the  application  of  remedies  greater  than  have 
been  presented  by  any  case  involving  the  Anti-trust  Act  which  has 
been  hitherto  considered  by  this  court:  First.  Because  in  this 
case  it  is  obvious  that  a  mere  decree  forbidding  stock  ownership  by 
one  part  of  the  combination  in  another  part  or  entity  thereof, 
would  afford  no  adequate  measure  of  relief,  since  different  ingre- 
dients of  the  combination  would  remain  unaffected,  and  by  the  very 
nature  and  character  of  their  organization  would  be  able  to  continue 
the  wrongful  situation  which  it  is  our  duty  to  destroy.  Second. 
Because  the  methods  of  apparent  ownership  by  which  the  wrongful 
intent  was,  in  part,  carried  out  and  the  subtle  devices  which,  as 
we  have  seen,  were  resorted  to  for  the  purpose  of  accomplishing 
the  wrong  contemplated,  by  way  of  ownership  or  otherwise,  are 
of  such  a  character  that  it  is  difficult  if  not  impossible  to  formulate 


Recent  Trust  Decisions  423 

a  remedy  which  could  restore  in  their  entirety  the  prior  lawful 
conditions.  Third.  Because  the  methods  devised  by  which  the 
various  essential  elements  to  the  successful  operation  of  the  tobacco 
business  from  any  particular  aspect  have  been  so  separated  under 
various  subordinate  combinations,  yet  so  unified  by  way  of  the 
control  worked  out  by  the  scheme  here  condemned,  are  so  involved 
that  any  specific  form  of  relief  which  we  might  now  order  in  sub- 
stance and  effect  might  operate  really  to  injure  the  public  and, 
it  may  be,  to  perpetuate  the  wrong.  Doubtless  it  was  the  presence 
of  these  difficulties  which  caused  the  United  States,  in  its  prayer 
for  relief  to  tentatively  suggest  rather  than  to  specifically  demand 
definite  and  precise  remedies.  We  might  at  once  resort  to  one  or 
the  other  of  two  general  remedies — a,  the  allowance  of  a  permanent 
injunction  restraining  the  combination  as  a  universality  and  all 
the  individuals  and  corporations  which  form  a  part  of  or  cooperate 
in  it  in  any  manner  or  form  from  continuing  to  engage  in  interstate 
commerce  until  the  illegal  situation  be  cured,  a  measure  of  relief 
which  would  accord  in  substantial  effect  with  that  awarded  below 
to  the  extent  that  the  court  found  illegal  combinations  to  exist; 
or,  b,  to  direct  the  appointment  of  a  receiver  to  take  charge  of  the 
assets  and  property  in  this  country  of  the  combination  in  all  its 
ramifications  for  the  purpose  of  preventing  a  continued  violation 
of  the  law,  and  thus  working  out  by  a  sale  of  the  property  of  the 
combination  or  otherwise,  a  condition  of  things  which  would  not 
be  repugnant  to  the  prohibitions  of  the  act.  But,  having  regard 
to  the  principles  which  we  have  said  must  control  our  action,  we 
do  not  think  we  can  now  direct  the  immediate  application  of  either 
of  these  remedies.  We  so  consider  as  to  the  first  because  in  view 
of  the  extent  of  the  combination,  the  vast  field  which  it  covers, 
the  all-embracing  character  of  its  activities  concerning  tobacco  and 
its  products,  to  at  once  stay  the  movement  in  interstate  commerce 
of  the  products  which  the  combination  or  its  cooperating  forces 
produce  or  control  might  inflict  infinite  injury  upon  the  public  by 
leading  to  a  stoppage  of  supply  and  a  great  enhancement  of  prices. 
The  second  because  the  extensive  power  which  would  result  from 
at  once  resorting  to  a  receivership  might  not  only  do  grievous  injury 
to  the  public,  but  also  cause  widespread  and  perhaps  irreparable 
loss  to  many  innocent  people.  Under  these  circumstances,  taking 
into  mind  the  complexity  of  the  situation  in  all  of  its  aspects  and  giv- 
ing weight  to  the  many-sided  considerations  which  must  control  our 
judgment,  we  think,  so  far  as  the  permanent  relief  to  be  awarded  is 


424  Industrial  Combinations  and  Trusts 

concerned,  we  should  decree  as  follows:  ist.  That  the  combination 
in  and  of  itself,  as  well  as  each  and  all  of  the  elements  composing  it, 
whether  corporate  or  individual,  whether  considered  collectively 
or  separately,  be  decreed  to  be  in  restraint  of  trade  and  an  attempt 
to  monopolize  and  a  monopolization  within  the  first  and  second 
sections  of  the  Anti-trust  Act.  2d.  That  the  court  below,  in  order 
to  give  effective  force  to  our  decree  in  this  regard,  be  directed  to 
hear  the  parties,  by  evidence  or  otherwise,  as  it  may  be  deemed 
proper,  for  the  purpose  of  ascertaining  and  determining  upon  some 
plan  or  method  of  dissolving  the  combination  and  of  recreating,  out 
of  the  elements  now  composing  it,  a  new  condition  which  shall  be 
honestly  in  harmony  with  and  not  repugnant  to  the  law.  3d.  That 
for  the  accomplishment  of  these  purposes,  taking  into  view  the 
difficulty  of  the  situation,  a  period  of  six  months  is  allowed  from  the 
receipt  of  our  mandate,  with  leave,  however,  in  the  event,  in  the 
judgment  of  the  court  below,  the  necessities  of  the  situation  require, 
to  extend  such  period  to  a  further  time  not  to  exceed  sixty  days. 
4th.  That  in  the  event,  before  the  expiration  of  the  period  thus 
fixed,  a  condition  of  disintegration  in  harmony  with  the  law  is  not 
brought  about,  either  as  the  consequence  of  the  action  of  the  court 
in  determining  an  issue  on  the  subject  or  in  accepting  a  plan  agreed 
upon,  it  shall  be  the  duty  of  the  court,  either  by  way  of  an  injunc- 
tion restraining  the  movement  of  the  products  of  the  combination 
in  the  channels  of  interstate  or  foreign  commerce  or  by  the  appoint- 
ment of  a  receiver,  to  give  effect  to  the  requirements  of  the  statute. 

Exhibit  3 

decree  against  the  powder  combination  l 

Second. — Is  the  combination  which  we  have  found  to  exist  one  that  is 
obnoxious  to  the  provisions  of  the  anti-trust  act? 

The  recent  decisions  of  the  Supreme  Court  in  Standard  Oil  Co.  v. 
United  States,  and  American  Tobacco  Co.  v.  United  States,  make 
it  quite  clear  that  the  language  of  the  anti-trust  act  is  not  to  receive 
that  literal  construction  which  will  impair  rather  than  enhance 

1  United  States  of  America  v.  E.  I.  du  Pont  de  Nemours  6*  Company  et  al. 
Opinion  of  the  Court  and  Interlocutory  Decree,  In  the  Circuit  Court  of  the 
United  States  for  the  District  of  Delaware,  pp.  35-45.  Handed  down  June  21, 
1911. 


Recent  Trust  Decisions  425 

freedom  of  interstate  commerce.  As  we  read  those  decisions,  re- 
straint of  interstate  trade  and  restraint  of  competition  in  interstate 
trade  are  not  interchangeable  expressions.  There  may  be,  under  the 
anti-trust  act,  restraint  of  competition  that  does  not  amount  to 
restraint  of  interstate  trade,  just  as  before  the  passage  of  the  act 
there  might  have  been  restraint  of  competition  that  did  not  amount 
to  a  common-law  restraint  of  trade.  This  fact  was  plainly  recog- 
nized in  United  States  v.  Joint  Traffic  Association,  171  U.  S.  505, 
567,  where  Mr.  Justice  Peckham  said: 

"We  might  say  that  the  formation  of  corporations  for  business  or 
manufacturing  purposes  has  never,  to  our  knowledge,  been  regarded 
in  the  nature  of  a  contract  in  restraint  of  trade  or  commerce.  The 
same  may  be  said  of  the  contract  of  partnership.  It  might  also  be 
difficult  to  show  that  the  appointment  by  two  or  more  producers  of 
the  same  person  to  sell  their  goods  on  commission  was  a  matter  in 
any  degree  in  restraint  of  trade.  We  are  not  aware  that  it  has  ever 
been  claimed  that  a  lease  or  purchase  by  a  farmer,  a  manufacturer 
or  merchant  of  an  additional  farm,  manufactory  or  shop,  or  the  with- 
drawal from  business  of  any  farmer,  merchant  or  manufacturer, 
restrained  commerce  or  trade  within  the  legal  definition  of  that 
term." 

While  all  this  is  true,  the  recent  decisions  of  the  Supreme  Court 
make  it  equally  clear  that  a  combination  cannot  escape  the  con- 
demnation of  the  anti-trust  act  merely  by  the  form  it  assumes  or  by 
the  dress  it  wears.  It  matters  not  whether  the  combination  be  "in 
the  form  of  a  trust  or  otherwise,"  whether  it  be  in  the  form  of  a 
trade  association  or  a  corporation,  if  it  arbitrarily  uses  its  power  to 
force  weaker  competitors  out  of  business  or  to  coerce  them  into  a 
sale  to  or  union  with  the  combination,  it  puts  a  restraint  upon  inter- 
state commerce  and  monopolizes  or  attempts  to  monopolize  a  part 
of  that  commerce  in  a  sense  that  violates  the  anti-trust  act.  The 
record  of  the  case  now  before  us  shows  that  from  1872  to  1902,  a 
period  of  thirty  years,  the  purpose  of  the  trade  associations  had  been 
to  dominate  the  powder  and  explosives  trade  in  the  United  States, 
by  fixing  prices,  not  according  to  any  law  of  supply  and  demand,  for 
they  arbitrarily  limited  the  output  of  each  member,  but  according 
to  the  will  of  their  managers.  It  appears,  further,  that  although 
these  associations  were  not  always  strong  enough  to  control  abso- 
lutely the  prices  of  explosives,  their  purpose  to  do  so  was  never 
abandoned.  Under  the  last  of  the  trade  association  agreements — 
the  one  dated  July  1,  1896,  and  which  was  in  force  until  June  30, 


426  Industrial  Combinations  and  Trusts 

1904 — the  control  of  the  combination  was  firmer  than  it  had  before 
been.  Succeeding  the  death  of  Eugene  du  Pont  in  January,  1902, 
and  the  advent  of  Thomas  Coleman  du  Pont  and  Pierre  S.  du  Pont, 
the  attempt  was  made  to  continue  the  restraint  upon  interstate 
commerce  and  the  monopoly  then  existing  by  vesting,  in  a  few  cor- 
porations, the  title  to  the  assets  of  all  the  corporations  affiliated  with 
the  trade  association,  then  dissolving  the  corporations  whose  assets 
had  been  so  acquired,  and  binding  the  few  corporations  owning  the 
operating  plants  in  one  holding  company,  which  should  be  able  to 
prescribe  policies  and  control  the  business  of  all  the  subsidiaries 
without  the  uncertainties  attendant  upon  a  combination  in  the 
nature  of  a  trade  association.  That  attempt  resulted  in  complete 
success.  Much  the  larger  part  of  the  trade  in  black  and  smokeless 
powder  and  dynamite  in  the  United  States  is  now  under  the  control 
of  the  combination  supported  by  the  28  defendants  above  named. 
That  combination  is  the  successor  of  the  combination  in  existence 
from  1896  to  June  30,  1904.  It  is  a  significant  fact  that  the  trade 
association,  organized  under  the  agreement  of  July  1,  1896,  was  not 
dissolved  until  June  30,  1904.  It  had  been  utilized  until  that  date 
by  Thomas  Coleman  du  Pont,  Pierre  S.  du  Pont  and  Alfred  I.  du 
Pont  in  suppressing  competition  and  thereby  building  up  a  mo- 
nopoly. Between  February,  1902,  and  June,  1904,  the  combina- 
tion had  been  so  completely  transmuted  into  a  corporate  form  that 
the  trade  association  was  no  longer  necessary.  Consequently,  the 
trade  association  was  dissolved  and  the  process  of  dissolving  the 
corporations  whose  capital  stocks  had  been  acquired,  and  concen- 
trating their  physical  assets  in  one  great  corporation,  was  begun. 
Before  the  plan  had  been  fully  carried  out  this  suit  was  commenced. 
The  proofs  satisfy  us  that  the  present  form  of  the  combination  is  no 
less  obnoxious  to  the  law  than  was  the  combination  under  the  trade 
association  agreement,  which  was  dissolved  on  June  30,  1904.  The 
28  defendants  are  associated  in  a  combination  which,  whether  the 
individual  defendants  were  aware  of  the  fact  or  not,  has  violated 
and  still  plans  to  violate  both  section  1  and  section  2  of  the  anti- 
trust act.  We  conclude  that  it  is  our  plain  duty  to  grant  such  a 
decree  as  will  prevent  and  restrain  further  violations  of  the  act. 

Third. — The  third  and  last  question  therefore  is,  what  shall  be  the 
nature  of  the  decree? 

It  must  be  one  of  dismissal  of  the  petition  as  to  all  of  the  defend- 
ants except  the  28  who  are  found  to  be  interested  in  and  supporters 
of  the  unlawful  combination. 


Recent  Trust  Decisions  427 

It  is  contended  by  counsel  for  the  defendants  that  there  can  be 
no  decree  against  the  28  defendants  for  the  reason  that  the  title  to 
the  property  held  by  the  defendant  corporations  cannot  be  impaired 
by  any  decree  of  this  Court.  "The  most  that  the  Government  in  any 
event  can  claim,"  say  the  counsel,  "is  that  prior  to  the  organization 
of  the  present  defendant  companies  there  did  exist  contracts  and 
combinations  in  restraint  of  trade,  and  possibly  a  monopoly  of  the 
explosive  industry  in  the  United  States,  and  that  such  combinations 
and  monopoly  were  participated  in  by  some  of  the  corporations 
which  were  later  purchased  by  the  present  defendants,  and  possibly 
that  some  of  the  properties  that  were  owned  by  the  corporations 
that  were  purchased  by  the  present  defendants  had  been  acquired 
by  such  corporations  as  a  result  of  such  combinations  and  mo- 
nopoly. .  .  Even  so,  the  corporations  had  title  to  such  properties, 
and  if  such  combinations  and  monopolies  no  longer  exist  the  title  to 
such  property  must  be  good  in  subsequent  purchasers  thereof." 
To  support  this  argument  Brooks  v.  Martin,  2  Wall.  71,  and  other 
cases,  are  referred  to.  But  we  have  found  that  the  corporations 
organized  after  the  advent  into  the  explosives  business  of  Thomas 
Coleman  du  Pont  and  Pierre  S.  du  Pont  are  a  part  of  an  existing 
combination  in  restraint  of  interstate  trade.  The  du  Pont  Com- 
pany of  1902  co-operated  with  the  advisory  and  special  committees 
of  the  trade  association  from  April  2,  1902,  to  June  30,  1904,  in 
fixing  prices,  apportioning  trade  amongst  the  members  of  the  asso- 
ciation, allowing  rebates,  and  forcing  competitors  to  submit  to  their 
rule.  The  du  Pont  Company  of  1903  was  created  to  aid  the  com- 
bination in  concentrating  its  power  and  fastening  its  hold  on  the 
monopoly  which  it  had  sedulously  built  up,  and  which  brought  to 
its  members  in  the  short  period  of  six  years,  the  enormous  profit  of 
$11,000,000  in  dividends  and  $12,000,000  or  $13,000,000  in  its 
surplus  account.  We  do  not  propose  by  our  decree  to  deal  with  titles 
to  property.  Our  power  is  defined  in  the  fourth  section  of  the  anti- 
trust act.  That  section  invests  us  "with  jurisdiction  to  prevent  and 
restrain  violations"  of  the  act.  The  same  section  provides  that  the 
petition  may  contain  a  prayer  that  the  violation  of  law  therein 
alleged  "  shall  be  enjoined  or  otherwise  prohibited."  It  is  our  pur- 
pose, as  it  is  our  duty,  to  exert  the  power  thus  conferred  on  us  to  the 
extent  necessary  to  "prevent  and  restrain"  further  violations  of  the 
act.  In  other  words,  the  relief  we  can  give  in  this  proceeding  is 
preventive  and  injunctive  only.  If  our  decree,  limited  to  that  pur- 
pose, shall  necessitate  a  discontinuance  of  present  business  methods, 


428  Industrial  Combinations  and  Trusts 

it  is  only  because  those  methods  are  illegal.  The  incidental  results 
of  a  sweeping  injunction  may  be  serious  to  the  parties  immediately 
concerned,  but,  in  carrying  out  the  command  of  the  statute,  which 
is  as  obligatory  upon  this  court  as  it  is  upon  the  parties  to  this  suit, 
such  results  should  not  stay  our  hand;  they  should  only  challenge 
our  care  that  our  decree  be  no  more  drastic  than  the  facts  of  the  case 
and  the  law  demand. 

The  dissolution  of  more  than  sixty  corporations  since  the  advent 
of  the  new  management  in  1902,  and  the  consequent  impossibility  of 
restoring  original  conditions  in  the  explosives  trade,  narrows  the 
field  of  operation  of  any  decree  we  may  make.  It  should  not  make 
the  decree  any  the  less  effective,  however.  In  the  Standard  Oil  case 
Mr.  Chief  Justice  White  said: 

"It  may  be  conceded  that  ordinarily  where  it  was  found  that  acts 
had  been  done  in  violation  of  the  statute,  adequate  measure  of  relief 
would  result  from  restraining  the  doing  of  such  acts  in  the  future. 
Swift  v.  United  States,  196  U.  S.  375.  But  in  a  case  like  this,  where 
the  condition  which  has  been  brought  about  in  violation  of  the 
statute,  in  and  of  itself,  is  not  only  a  continued  attempt  to  mo- 
nopolize but  also  a  monopolization,  the  duty  to  enforce  the  statute 
requires  the  application  of  broader  and  more  controlling  remedies. 
As  penalties  which  are  not  authorized  by  law  may  not  be  inflicted  by 
judicial  authority,  it  follows  that  to  meet  the  situation  with  which 
we  are  confronted  the  application  of  remedies  two-fold  in  character 
becomes  essential;  1st,  to  forbid  the  doing  in  the  future  of  acts  like 
those  which  wre  have  found  to  have  been  done  in  the  past  which  would 
be  violative  of  the  statute;  2nd,  the  exertion  of  such  measure  of  relief 
as  will  effectually  dissolve  the  combination  found  to  exist  in  viola- 
tion of  the  statute,  and  thus  neutralize  the  extension  and  continu- 
ally operating  force  which  the  possession  of  the  power  unlawfully 
obtained  has  brought  and  will  continue  to  bring  about." 

Both  of  these  remedies  are  as  clearly  demanded  in  the  present  case 
as  they  were  in  the  Standard  Oil  case.  The  existing  combination  in 
the  explosives  trade  is  one  in  restraint  of  interstate  commerce.  Its 
sales  board  fixes  prices  and  exercises  powers  which  Mr.  Haskell,  its 
chairman,  admits  are  even  more  extended  in  their  scope  than  were 
the  powers  of  the  advisory  and  special  committees  which  the  sales 
board  superseded  on  June  30,  1904,  after  co-operating  with  them 
from  July,  1903.  It  has  also  attempted  to  monopolize  and  is  at- 
tempting to  monopolize,  and  has  monopolized  and  is  now  in  the 
possession  of  a  monopoly  of,  a  large  part  of  the  explosives  trade  in 


Recent  Trust  Decisions  429 

the  United  States.  Our  decree  must  therefore  be  one  which  will 
forbid  future  acts  violative  of  the  law  and  compel  a  dissolution  of 
the  combination  existing  in  violation  of  the  law.  To  stop  the  busi- 
ness of  the  combination  immediately,  however,  might  be  attended 
with  very  disastrous  consequences.  The  defendants,  or  some  of 
them,  for  example,  furnish  military  and  ordinance  powders  to  the 
United  States  Government.  We  understand,  also,  that  they  fur- 
nish explosives  used  in  the  construction  of  the  Panama  Canal. 
Their  ability  to  continue  so  to  do  should  not  be  destroyed  before  the 
expiration  of  a  reasonable  time  for  adjusting  their  business  to  the 
changed  conditions.  In  the  Standard  Oil  and  American  Tobacco 
cases  six  months  were  allowed  for  making  the  changes  necessitated 
by  the  decrees  entered  therein.  What  time  should  be  allowed  in  the 
case  now  in  hand,  and  what  other  details  should  be  embodied  in  the 
final  decree,  we  cannot  now  determine.  The  present  decree  will 
therefore  be  interlocutory.  It  will  adjudge  that  the  28  defendants 
are  maintaining  a  combination  in  restraint  of  interstate  commerce 
in  powder  and  other  explosives  in  violation  of  section  1  of  the  anti- 
trust act,  that  they  have  attempted  to  monopolize  and  have  mo- 
nopolized a  part  of  such  commerce  in  violation  of  section  2  of  that 
act,  that  they  shall  be  enjoined  from  continuing  said  combination, 
and  that  the  combination  shall  be  dissolved 

Exhibit  4 
decree  against  the  standard  sanitary  manufacturing 

COMPANY  1 

The  ware  is  absolutely  unpatented.  Anyone  may  sell  it  as  freely 
as  he  may  a  loaf  of  bread.  No  one  can  tell  by  looking  at  a  bathtub 
whether  enameled  powder  has  been  sprinkled  upon  it  by  a  patent 
dredger  any  more  than  anyone  who  eats  a  loaf  of  bread  can  tell 
whether  it  has  been  baked  in  an  oven  with  a  patented  grate,  or  who 
lights  a  kerosene  lamp  can  tell  whether,  in  the  process  of  refining,  a 
patented  tool  has  been  used,  or  by  taking  a  pinch  of  snuff  can  be 
sure  that  there  was  or  not  a  patented  mill  used  in  grinding  the 
tobacco. 

1  United  Stales  of  America  v.  The  Standard  Sanitary  Manufacturing  Com- 
pany. Opinion  of  the  Court  on  Final  Hearing,  In  the  Circuit  Court  of  the 
United  States  for  the  District  of  Maryland,  pp.  33-47.  Handed  down,  Oct.  13th, 
191 1.  For  a  brief  history  of  the  Bathtub  combination  see  Stevens,  W.  S., 
Quarterly  Journal  of  Economics,  August,  1912,  Vol.  XXVI,  pp.  593ff. 


430  Industrial  Combinations  and  Trusts 

If  agreements  in  Ihis  case  are  not  violations  of  the  Sherman  Act, 
similar  agreements  among  all  the  bakers  of  bread,  the  refiners  of 
petroleum,  the  grinders  of  snuff  will  be  legal,  provided  that  some- 
where in  the  process  of  making  the  bread,  refining  the  petroleum, 
or  grinding  the  snuff  a  patented  tool  has  been  used. 

The  issue  is  important.  It  cuts  deep.  The  record  squarely  pre- 
sents it.     It  must  be  passed  upon. 

The  defendants  say  they  have  broken  no  law  even  if  all  that  has 
thus  far  been  said  herein  be  true. 

They  rely  upon  what  they  understand  to  have  been  decided  by 
the  Circuit  Court  of  Appeals  of  the  Seventh  Circuit  in  the  case  of  the 
Rubber  Tire  Wheel  Co.  v.  Milwaukee  R.  W.  Co.  (154  Fed.  358). 

There  the  court  said  that  no  one  can  use  a  patented  article  with- 
out the  consent  of  the  patentee.  He  may  fix  his  own  conditions.  It 
adds,  "Whatever  the  terms  the  courts  will  enforce  them,  provided 
only  that  the  licensee  is  not  thereby  required  to  violate  some  law 
outside  of  the  patent  laws,  like  the  doing  of  murder  or  arson." 


.  .  .  At  common  law  and  by  statute  monopolies  are  unlawful.  At 
common  law  and  by  statute  a  man  who  invented  a  new  and  useful 
thing  might  be  given  a  right  which  would  enable  him  for  a  limited 
time  effectually  to  monopolize  it.  The  courts  have  said  that  this 
right  to  monopolize  what  he  invented  can  not  be  taken  from  a 
patentee  by  State  laws.  They  say  it  has  not  been  taken  away  by 
Congress.  All  men  know  that  Congress  never  intended,  when  it 
passed  the  Sherman  Act,  to  change  the  patent  law.  It  did  not  do  so. 
The  patentee  may,  in  spite  of  that  law,  monopolize  for  the  term  of 
his  patent  the  thing  which  he  or  his  assignor  invented.  Neither  at 
common  law  nor  in  this  country  by  statute  has  he  ever  had  a  right 
to  monopolize  anything  else.  As  to  everything  not  validly  claimed 
in  his  patent  he  is  as  other  men.  If  by  the  common  law  or  the  stat- 
utes of  the  State  or  by  the  enactments  of  Congress  men  are  forbid- 
den to  restrain  trade  or  to  monopolize  it,  a  patentee  may  not  re- 
strain trade  or  attempt  to  monopolize  it  in  anything  except  that 
which  is  covered  by  his  patent. 

A  patent  is  a  grant  of  a  right  to  exclude  all  others  from  making!, 
using,  or  selling  the  invention  covered  by  it.  It  does  not  give  a 
right  to  the  patentee  to  sell  indulgences  to  violate  the  law  of  the 
land,  be  it  the  Sherman  Act  or  another. 

The  right  to  exclude  others  is  the  property  of  the  patentee.    It  is 


Recent  Trust  Decisions  431 

his  very  own.  He  may  do  with  it  as  he  will.  A  very  rich  man  may 
have  $100,000,000  of  cash.  It  is  his  property.  It  is  his  very  own. 
He  may  do  with  it  as  he  will.  Neither  one  of  them  can  use  his 
property  to  bring  about  a  violation  of  law.  A  patentee  who  monop- 
olizes his  invention  breaks  no  law.  He  who  uses  his  property 
right  to  exclude  others  from  the  making,  selling,  or  using  his  inven- 
tion for  the  purpose  and  with  the  effect  of  making  a  combination  to 
restrain  trade  in  something  from  which  his  patent  gives  him  no 
right  to  exclude  others,  does  break  the  law.  He  breaks  it  precisely 
as  the  individual  defendants  in  the  Standard  Oil  and  American 
Tobacco  Cos.  broke  it.  They  had  the  same  right  to  use  their  brains, 
their  capital,  and  their  credit  as  they  thought  best,  as  he  had  to 
use  his  right  to  exclude  all  others  from  making,  using,  or  selling 
automatic  dredgers.  He  was  subject  to  the  same  limitations  as 
they  were.  They  could  not  lawfully  use  their  brains,  their  money, 
and  their  credit  to  restrain  trade  in  petroleum  and  tobacco.  He  can 
not  use  his  patent  rights  to  restrain  trade  in  unpatented  bathtubs. 
The  defendants  have  pressed  upon  our  attention  many  cases  in 
the  Circuit  Courts  and  in  the  Circuit  Courts  of  Appeal.  Many  of 
them  have  upheld  the  right  of  a  patentee  to  fix  the  price  below  which 
a  purchaser  from  him  of  patented  articles  may  not  sell  those  articles. 
In  some  of  these  cases  it  has  been  held  that  one  who  sells  at  a  lower 
price  thereby  becomes  an  infringer  and  that  the  Federal  Courts 
have  jurisdiction  of  a  suit  brought  against  him  on  account  of  such 
sale,  irrespective  of  the  amount  in  controversy  or  the  citizenship 
of  the  parties. 


The  Supreme  Court  has  in  several  recent  cases  expressly  said 
that  it  was  not  be  to  understood  as  expressing  any  opinion  as  to 
whether  such  restrictions  when  applied  to  patented  articles  were 
or  were  not  valid 


Wayman  did  not  sell  patented  dredgers  on  condition  that  the 
purchasers  should  not  resell  them  below  a  fixed  price.  The  question 
of  whether  such  restrictions  upon  the  sale  of  patented  articles  are 
valid  is  not  before  us.  We  neither  decide  it  nor  intimate  any  opin- 
ion upon  it. 


432  Industrial  Combinations  and  Trusts 

What  has  been  said  is  sufficient  for  the  determination  of  this 
case.  The  ware  is  not  patented.  The  agreements  or  licenses  at- 
tempt to  fix  the  price  of  unpatented  ware  and  to  monopolize  the 
trade  in  it.  The  fact  that  Wayman  had  a  patent  on  something 
else,  even  though  it  was  a  tool  used  in  one  step  of  the  making  of  the 
ware,  gives  neither  him  nor  his  licensees  the  right  to  restrain  inter- 
state trade  in  the  ware.  The  ownership  of  a  patent  for  a  tool  by 
which  old,  well-known,  and  unpatented  articles  of  general  use  can 
be  more  cheaply  made  gives  no  right  to  combine  the  makers  and 
dealers  in  the  unpatented  articles  in  an  agreement  to  make  the 
public  pay  more  for  it. 


In  what  has  been  said  it  has  been  assumed  that  Wayman  was  the 
real  and  substantial  owner  of  the  patents ;  that  the  scheme  was  his ; 
that  his  purpose  was  merely  to  make  money  for  himself  by  selling 
to  the  corporate  defendants  indulgences  to  sin  against  the  Sherman 
Act. 

The  Government  contends  that  this  was  not  the  real  situation. 
In  its  view  there  is  nothing  before  the  court  except  an  ordinary 
combination  to  raise  and  maintain  wholesale  and  retail  prices  and 
to  force  all  the  makers  and  dealers  in  the  country  into  it.  Wayman, 
it  says,  was  nothing  more  than  the  ordinary  promoter.  The  pat- 
ents served  the  purpose  of  the  certificate  of  incorporation  from  New 
Jersey  or  Delaware  used  when  the  combination  became  a  consoli- 
dation. We  have  not  discussed  this  branch  of  the  case.  We  will 
not.  We  refrain  from  doing  so  not  because  it  would  not  be  perti- 
nent. It  would.  Ordinarily  it  would  receive  full  consideration. 
Unusual  circumstances  shown  by  the  record  make  it  inexpedient 
and  even  improper  to  do  so  if  the  case  can  be  disposed  of  without 
commenting  upon  that  aspect  of  it. 


.  .  .  Against  the  other  defendants,  corporate  and  individual,  the 
Government  is  entitled  to  injunctive  relief  substantially  as  prayed 
for.  In  view  of  the  pendency  of  the  criminal  case  all  characteriza- 
tion of  what  the  defendants  have  done  not  necessary  to  the  effective- 
ness of  the  decree  should  be  omitted  from  it.  The  Government  may 
submit  a  draft  of  a  decree  to  the  counsel  for  the  defendants.  If  an 
agreement  can  not  be  speedily  had  we  will  upon  application  fix  an 
early  day  for  its  settlement. 


Recent  Trust  Decisions  433 


Exhibit  5 

decree  of  injunction  against  the  southern  wholesale 
grocers  association  * 

i.  That  the  said  defendants,  The  Southern  Wholesale  Grocers' 
Association  and  all  the  members  of  said  association,  The  Southern 
Wholesale  Grocers'  Association,  a  corporation,  The  McLester- 
Van  Hoose  Company,  James  A.  Van  Hoose,  Robert  McLester, 
The  Alabama  Grocery  Company,  S.  W.  Lee,  Joseph  H.  Mc- 
Laurin,  L.  M.  Hooper,  F.  E.  Hashagen,  C.  W.  Bartleson,  Robert 
Moore,  Thomas  C.  Davis,  B.  B.  Earnshaw,  C.  C.  Guest,  T.  H.  Sco- 
vell,  W.  T.  Reeves,  R.  A.  Morrow,  J.  H.  C.  Wulburn,  J.  D.  Faucette, 
W.  A.  Scott,  and  James  W.  Lee,  and  each  and  all  of  them,  their 
directors,  officers,  agents,  servants,  and  employees,  and  all  persons 
acting  under,  through,  by,  or  in  behalf  of  them  or  either  of  them,  or 
claiming  so  to  act  be,  and  they  are  hereby,  perpetually  enjoined, 
restrained,  and  prohibited  from  combining,  conspiring,  confederat- 
ing, or  agreeing  together  or  with  others  expressly  or  impliedly, 
directly  or  indirectly,  to  prevent  manufacturers  or  producers  en- 
gaged in  selling  or  shipping  commodities  among  the  several  States 
and  in  the  District  of  Columbia  from  selling  such  commodities  to 
any  person  who  is  not  a  member  of  the  said  The  Southern  Whole- 
sale Grocers'  Association,  or  who  is  not  listed  on  the  so-called 
Green  Book,  published  by  said  association,  its  officers,  and  agents, 
and  entitled  "Official  List  of  Wholesale  Grocers  in  the  States  of 
Alabama,  Arkansas,  District  of  Columbia,  Florida,  Georgia,  Indian 
Territory,  Louisiana,  Maryland,  Mississippi,  North  Carolina, 
Oklahoma,  South  Carolina,  Tennessee,  Texas,  and  Virginia,"  or 
any  book,  pamphlet  or  list  of  like  character;  and  they  and  each  of 
them  be,  and  are  likewise  enjoined,  restrained,  and  prohibited  from 
publishing,  causing  to  be  published,  aiding,  assisting,  or  encourag- 
ing the  publication,  distribution,  or  circulation  of  any  book,  pam- 
phlet, or  list  wherein  is  contained  only  the  names  of  wholesale 
grocers  located  in  the  territory  embraced  by  said  organization  who 
have  announced  their  intention  or  agreed,  directly  or  indirectly, 
expressly  or  impliedly,  to  work  in  harmony  with  said  association. 

They  are  also  enjoined,  restrained,  and  prohibited  from  publish- 

1  United  States  of  America  v.  The  Southern  Wholesale  Grocers  Association 
et  al.  Decree  of  Injunction,  In  the  Circuit  Court  of  the  United  States  for  the 
Northern  District  of  Alabama,  pp.  4-9.    Handed  down  October  17th,  1911. 


434  Industrial  Combinations  and  Trusts 

ing  or  distributing,  or  causing  to  be  published  or  distributed,  or 
aiding  or  assisting  or  encouraging  in  (he  publication  or  distribution 
of  any  list  <>r  lists  of  manufacturers  or  producers  who  have,  ex- 
pressly or  impliedly,  directly  or  indirectly,  agreed  to  sell  only  to 
members  of  said  association,  or  to  persons,  firms,  or  corporations 
listed  in  said  Green  Book,  or  book,  pamphlet,  or  list  of  like 
character. 

2.  That  the  said  defendants  and  each  and  all  of  them,  their 
directors,  officers,  agents,  servants,  and  employees,  and  all  persons 
acting  under,  through,  by,  or  in  behalf  of  them,  or  either  of  them, 
or  claiming  to  so  act,  be,  and  they  are  hereby,  enjoined,  restrained, 
and  prohibited  from  combining,  conspiring,  confederating,  and 
agreeing  together  or  with  others  to  fix  a  price  at  which  any  com- 
modity shall  be  sold,  or  to  coerce  manufacturers  and  producers  en- 
gaged in  selling  and  shipping  commodities  among  the  several  States, 
and  in  the  District  of  Columbia,  to  fix  a  limited  selling  price  at 
which  such  commodities  are  to  be  sold,  and  to  have  such  price 
printed  on  cards  and  distributed;  and  they  are  hereby  enjoined, 
restrained,  and  prohibited  from  printing,  causing  to  be  printed, 
or  encouraging  or  aiding  in  the  printing  of  such  cards,  or  their  dis- 
tribution; and  they  and  each  of  them  are  likewise  enjoined,  re- 
strained, and  prohibited  from  conspiring,  confederating,  or  agreeing 
together  or  with  others,  expressly  or  impliedly,  directly  or  indirectly, 
to  prevent  such  manufacturers  and  producers  from  selling  and 
shipping  commodities  to  any  wholesale  grocer  who  does  not  main- 
tain the  price  so  fixed  and  listed;  and  they  and  each  of  them  are 
likewise  enjoined,  restrained,  and  prohibited  from  demanding  and 
receiving  from  any  such  manufacturer  or  producer  any  rebate, 
bonus,  or  emolument  of  any  kind  to  be  paid  to  any  wholesale  dealer 
or  jobber  for  and  on  account  of  the  fact  that  he  has  maintained  the 
limited  selling  price;  and  are  likewise  enjoined,  restrained,  and 
prohibited  from  paying  or  delivering  any  such  rebate,  bonus,  or 
emolument  of  any  kind,  directly  or  indirectly,  to  any  such  whole- 
sale grocer  or  jobber  who  has  maintained  such  limited  selling  price, 
or  demanding  or  receiving  any  fine  or  penalty,  directly  or  indirectly, 
from  any  wholesale  grocer  or  jobber  engaged  in  commerce  among 
the  several  States  and  in  the  District  of  Columbia  for  and  on  ac- 
count of  such  wholesale  grocer  or  jobber  not  having  maintained 
said  limited  selling  price. 

3.  That  said  defendants  and  each  and  all  of  them,  their  directors, 
officers,  agents,  servants,  and  employees,  and  all  persons  acting 


Recent  Trust  Decisions  435 

under,  through,  by,  or  in  behalf  of  them,  or  either  of  them,  or  claim- 
ing so  to  act,  be,  and  they  are  hereby,  perpetually  enjoined,  re- 
strained, and  prohibited  from  conspiring,  confederating,  or  agreeing 
together  or  with  others,  expressly  or  impliedly,  directly  or  indi- 
rectly, to  boycott  any  manufacturer  or  producer,  wholesaler,  or 
jobber  engaged  in  commerce  among  the  several  States  and  in  the 
District  of  Columbia  for  and  on  account  of  any  such  manufacturer, 
producer,  wholesaler  or  jobber  having  sold  or  transported  in  inter- 
state commerce  any  commodity  to  any  person,  firm,  or  corporation 
who  is  not  a  member  of  said  association  or  who  does  not  maintain  the 
said  limited  selling  price  or  who  is  not  listed  in  the  said  Green  Book 
or  book,  pamphlet,  or  list  of  like  character;  and  also  from  combining, 
conspiring,  confederating,  and  agreeing  together,  or  with  others, 
expressly  or  impliedly,  directly  or  indirectly,  to  prevent  any  person, 
firm,  or  corporation  who  refuses  to  join  said  association  or  who 
refuses  to  maintain  said  limited  selling  price  or  who  sells  com- 
modities direct  to  the  consumer  from  purchasing  such  commodities 
from  manufacturers,  jobbers,  producers,  or  wholesalers  engaged  in 
commerce  among  the  several  States  and  in  the  District  of  Columbia; 
and  also  from  conspiring,  confederating,  and  agreeing  together  or 
with  others,  expressly  or  impliedly,  directly  or  indirectly,  to  increase 
jobbers'  profits  by  increasing  prices  at  which  wholesalers  and  jobbers 
shall  sell  any  commodity  in  interstate  commerce. 

4.  That  said  defendants  and  each  and  all  of  them,  their  directors, 
officers,  agents,  servants,  and  employees,  and  all  persons  acting 
under,  through,  by,  or  in  behalf  of  them,  or  either  of  them,  or  claim- 
ing so  to  act,  be,  and  they  are  hereby,  perpetually  enjoined,  re- 
strained, and  prohibited  from  conspiring  or  agreeing  together  or 
with  others,  expressly  or  impliedly,  to  do  or  to  refrain  from  doing 
anything  the  purpose  or  effect  of  which  is  to  fix  or  maintain  the 
price  at  which  any  commodity  employed  or  intended  to  be  employed 
in  commerce  among  the  several  States  and  in  the  District  of  Co- 
lumbia shall  or  should  be  sold  by  any  manufacturer,  jobber,  whole- 
saler, or  retailer,  or  the  purpose  or  effect  of  which  is  to  hinder  or 
prevent,  by  intimidation  or  coercion,  any  person,  firm,  or  corpora- 
tion from  buying  or  selling  any  such  commodity  wherever,  when- 
ever, from  and  to  whomsoever  and  at  whatsoever  price  may  be  then 
and  there  agreed  upon  by  the  seller  and  purchaser. 

5.  The  Southern  Wholesale  Grocers'  Association,  its  officers  and 
members,  and  all  who  shall  hereafter  become  officers  and  members 
of  said  association,  are  hereby  perpetually  enjoined  and  inhibited 


436  Industrial  Combinations  and  Trusts 

from  doing,  or  combining  or  conspiring  to  do,  cither  or  any  of  said 
acts.  The  said  association  and  its  officers  and  members  are  not 
restrained  from  maintaining  said  organization  for  social  or  other 
purposes  than  those  herein  prohibited. 


Exhibit  6. 
decree  against  the  general  electric  company.1 

Second:  That  the  General  Electric  Company  is  the  owner  of  the 
entire  capital  stock  of  the  National  Electric  Lamp  Company,  and, 
at  the  time  of  the  filing  of  the  petition  herein,  was  the  owner  of  the 
majority  of  said  stock;  that  the  said  National  Electric  Lamp  Com- 
pany is  in  turn  the  owner  of  the  entire  capital  stock  of  the  subsidiary 
companies  hereinafter  named;  that  such  stock  ownership  has  been 
concealed  from  the  general  public  and  the  trade;  that  notwith- 
standing such  stock  ownership  the  General  Electric  Company,  the 
National  Electric  Lamp  Company,  and  the  latter 's  subsidiary 
companies  hereinafter  named,  are  pretending  to  be  separate,  dis- 
tinct, independent  and  competing  companies,  in  the  business  of 
manufacturing,  dealing  in  and  selling  incandescent  electric  lamps, 
whereas  no  such  independence  or  competition  exists  or  has  existed, 
and  that  the  General  Electric  Company  has  heretofore  been  largely 
engaged  in  carrying  on  the  incandescent  lamp  business  indirectly 
through  said  companies. 

It  is,  therefore,  adjudged,  ordered  and  decreed,  that  the  defend- 
ants, National  Electric  Lamp  Company  and  all  its  subsidiary  com- 
panies , ,  be  each  and  all  of  them  dissolved,  and  the 

General  Electric  Company  is  enjoined  from  hereafter  conducting, 
except  in  its  own  name,  the  business  heretofore  or  hereafter  carried 
on  by  it  in  incandescent  lamps  of  any  and  every  description;  and 

It  is  further  adjudged,  ordered  and  decreed  that  all  factories, 
plants,  and  manufacturing  and  selling  departments  operated  or 
owned  by  said  General  Electric  Company,  for  the  manufacture  and 
sale  of  incandescent  lamps,  shall  be  made  known  to  the  general 
public  and  trade  as  the  property  and  business  of  the  said  General 
Electric    Company; 

1  United  States  of  America  v.  General  Electric  Company  et  al.  Final  Decree, 
In  the  Circuit  Court  of  the  United  States  for  the  Northern  District  of  Ohio, 
Eastern  Division,  pp.  3-10.  Handed  down  Oct.  12,  191 1.  For  a  brief  history 
of  the  Electric  Lamp  combination  see  Stevens,  W.  S.,  Quarterly  Journal  of 
Economics,  August  191 2,  Vol.  XXVI,  pp.  593^. 


Recent  Trust  Decisions  437 

Third:  That  the  General  Electric  Company  and  each  and  all  of 
the  Lamp  Manufacturing  Defendants  as  defined  in  clause  fourth, 
their  officers,  agents  and  servants  be  and  they  hereby  are  restrained, 
enjoined  and  forbidden  from  making  or  carrying  out  directly  or 
indirectly,  any  contracts  with  any  manufacturer  or  manufacturers  of 
lamp-making  machinery,  or  with  any  manufacturer  or  manufac- 
turers of  bulbs  and  tubing  for  incandescent  lamps,  whereby  such 
manufacturers  or  any  of  them  shall  be  bound  not  to  sell  the  goods, 
manufactured  by  them,  respectively,  to  others  than  the  said  de- 
fendants or  any  of  them,  or  hindered  from  so  doing  or  obligated  to 
sell  to  the  said  defendants  or  any  of  them  at  other  and  different 
prices  and  terms  of  payment  than  those  to  which  they  severally 
may  sell  to  other  purchasers. 

Fourth:  That  the  General  Electric  Company  and  each  and  all  of 
the  said  defendants  mentioned  in  clause  second  hereof,  together  with 
the  Westinghouse  Electric  and  Manufacturing  Company,  Westing- 
house  Lamp  Company,  Aetna  Electric  Company,  The  Capital 
Electric  Company,  The  Franklin  Electric  Manufacturing  Company, 
Liberty  Electrical  Manufacturing  Company,  and  Howard  Gilmore 
and  William  Gilmore,  doing  business  as  the  Gilmore  Electric  Com- 
pany, all  said  defendants  being  collectively  herein  designated  "The 
Lamp  Manufacturing  Defendants,"  are  enjoined  from  fixing  by 
combination,  agreement,  understanding  or  any  other  acts  between 
any  two,  more  or  all  of  them,  or  between  them  or  any  of  them  and 
others,  the  price  or  prices  at  which  any  incandescent  electric  lamp 
or  lamps  of  any  pattern,  character,  type  or  description,  whether 
made  or  sold  under  letters  patent,  license  or  otherwise,  shall  be  sold 
or  dealt  in,  either  at  wholesale  or  retail;  provided  that  any  of  the 
defendants  lawfully  owning  patents  may  grant  to  another  defendant 
or  to  others,  or  may  receive  appropriate  manufacturing  licenses 
under  such  patents,  or  under  any  patents  lawfully  owned  by  any  of 
the  defendants  or  others,  upon  terms  and  conditions  fixed  only  by 
the  licensors;  provided  further,  that  any  such  licensor  is  hereby 
enjoined  and  prohibited  from  requiring  or  imposing  upon  the  li- 
censee the  fixing  of  a  resale  price  to  be  observed  by  the  licensee's 
vendees;  and  the  purchasers  of  such  lamps  from  either  the  licensor 
or  from  the  licensee  or  from  the  vendees  of  either  the  licensor  or 
licensee,  whether  at  wholesale  or  retail,  shall  not  be  in  any  manner 
restricted  as  to  the  price  at  which  such  lamps  shall  be  sold  to  the 
public  or  to  any  dealer  or  consumer. 

Fifth:  That  the  General  Electric  Company  and  the  other  above- 


438  Industrial  Combinations  and  Trusts 

mentioned  Lamp  Manufacturing  Defendants  are  enjoined  from 
maintaining,  by  agreement,  differentials  between  lamps  which  do 
not  in  fact  differ  in  quality  or  efficiency,  and  said  defendants  are 
enjoined  from  allowing  discounts  based  on  aggregate  purchases 
from  different  manufacturers. 

Sixth:  That  the  General  Electric  Company  and  the  other  above- 
named  Lamp  Manufacturing  Defendants,  and  each  of  them,  their 
officers,  agents  and  servants,  are  perpetually  enjoined  and  restrained 
from  making  or  enforcing  any  contracts,  arrangements,  agreements 
or  requirements  with  dealers,  jobbers  and  consumers,  who  buy  from 
the  said  defendants  either  tantalum  filament,  tungsten  filament, 
metalized  carbon  filament  or  ordinary  carbon  filament  lamps,  or  any 
of  them,  by  which  such  dealers,  jobbers  and  consumers  are  com- 
pelled to  purchase  all  their  ordinary  carbon  filament  lamps  from  said 
defendants  as  a  condition  to  obtaining  such  other  types  of  lamps,  or 
any  of  them,  or  by  which  dealers,  jobbers  and  consumers  are  com- 
pelled to  purchase  any  one  or  more  of  the  above-mentioned  types  of 
lamps  from  the  said  defendants  as  a  condition  to  the  purchase  or 
supply  of  any  other  or  all  of  said  types  of  lamps;  and  the  said  General 
Electric  Company  and  the  Lamp  Manufacturing  Defendants  afore- 
said are  perpetually  enjoined  and  restrained  from  discriminating 
against  any  dealer,  jobber  or  consumer  desiring  to  purchase  tantalum, 
tungsten  or  metalized  carbon  filament  lamps  because  of  the  fact  that 
such  dealer,  jobber  or  consumer  purchases  ordinary  carbon  filament 
lamps  from  others,  and  are  perpetually  enjoined  and  restrained  from 
discriminating  against  any  dealer,  jobber  or  consumer  desiring  to 
purchase  any  one  or  more  of  the  above-mentioned  types  of  lamps 
because  of  the  fact  that  such  dealer,  jobber  or  consumer  purchases 
any  other  of  said  lamps  from  other  manufacturers  or  dealers. 

Seventh:  That  the  General  Electric  Company  and  the  others  of 
the  said  Lamp  Manufacturing  Defendants  are  perpetually  enjoined 
and  restrained  when  making  discounts  based  on  the  quantity  of 
lamps  purchased  by  any  dealer,  jobber  or  consumer  from  making 
such  discounts  on  the  basis  of  the  total  quantity  of  tungsten,  tanta- 
lum, metalized  carbon  and  ordinary  carbon  filament  lamps  sold,  or 
the  total  quantity  of  ordinary  carbon  filament  lamps  and  any  one 
or  more  of  such  other  types  of  lamps  sold;  and  the  General  Electric 
Company  and  the  others  of  the  said  Lamp  Manufacturing  Defend- 
ants are  further  perpetually  enjoined  and  restrained  from  making 
any  discounts  based  on  the  total  quantity  of  any  two  or  more  types 
of  lamps  sold,  when  the  result  is  to  combine  or  aggregate  the  discount 


Recent  Trust  Decisions  439 

on  both  an  unpatented  lamp  and  a  lamp  patented  or  claimed  to  be 
patented;  and  that  said  defendants  and  each  and  all  of  them  are 
perpetually  enjoined  from  utilizing  any  patents  which  they  may 
have  or  claim  to  have  or  which  they  may  hereafter  acquire  or  claim 
to  have  acquired,  as  a  means  of  controlling  the  manufacture  or  sale 
of  any  type  or  types  of  lamps  not  protected  by  lawful  patents. 

Eighth:  That  the  General  Electric  Company  and  the  other  de- 
fendants are  each  enjoined  and  restrained  from  offering  or  making 
more  favorable  prices  or  terms  of  sale  for  incandescent  electric  lamps 
to  the  customers  of  any  rival  manufacturer  or  manufacturers  than 
it  at  the  same  time  offers  or  makes  to  its  established  trade,  where 
the  purpose  is  to  drive  out  of  business  such  rival  manufacturer  or 
manufacturers,  or  otherwise  unlawfully  to  restrain  the  trade  and 
commerce  of  the  United  States  in  incandescent  electric  lamps;  pro- 
vided that  no  defendant  is  enjoined  or  restrained  from  making  any 
prices  for  incandescent  electric  lamps  to  meet,  or  to  compete  with, 
prices  previously  made  by  any  other  defendant,  or  by  any  rival 
manufacturer;  and  provided  further  than  nothing  in  this  decree 
shall  be  taken  in  any  respect  to  enjoin  or  restrain  fair,  free  and  open 
competition. 

Ninth:  That  the  General  Electric  Company,  as  licensor,  on  the 
one  hand,  and  Westinghouse  Electric  and  Manufacturing  Company, 
The  Capital  Electric  Company,  The  Aetna  Electric  Company,  The 
Franklin  Electric  Manufacturing  Company,  The  Liberty  Electrical 
Manufacturing  Company,  and  Howard  Gilmore  and  William  Gil- 
more,  trading  as  the  Gilmore  Electric  Company,  as  licensees,  and 
each  and  every  one  of  them,  and  their  officers,  agents  and  servants, 
are  hereby  perpetually  enjoined  and  restrained  from  operating  under 
any  license  contracts  or  agreements  so  far  as  such  contracts  or 
agreements  provide  that  prices  and  terms  of  sale  of  incandescent 
electric  lamps  shall  be  fixed  otherwise  than  by  the  licensor,  or  con- 
taining provisions  fixing  the  prices  at  which  any  purchaser  or  any 
vendee  from  a  manufacturer  shall  sell  incandescent  electric  lamps. 


CHAPTER  XIV 

METHODS  OF  DISSOLUTION 

NOTE 

This  chapter  scarcely  requires  a  headnote.  The  dissolutions  of 
both  the  Standard  Oil  and  Tobacco  combinations  are  recent  history. 
It  is,  therefore,  almost  needless  to  state  that  these  dissolutions 
grew  out  of  the  decrees  handed  down  by  the  Supreme  Court  in  the 
spring  of  191 1.  The  third  exhibit  in  the  chapter  is  the  dissolution 
plan  of  the  Powder  Trust.  This  decree  followed  the  Interlocutory 
Decree  reprinted  as  Exhibit  3  in  the  preceding  chapter. — Ed. 


Exhibit  i 


1 


THE   DISSOLUTION   OF   THE   AMERICAN   TOBACCO   COMPANY. 

And  it  is  further  ordered,  adjudged,  and  decreed,  that  said  plan 
as  modified  by  the  consent  of  the  parties,  or  through  the  action 
of  this  court  as  aforesaid,  is  as  follows,  to  wit: 

A. 

DISSOLUTION   OF  AMSTERDAM   SUPPLY   CO. 

Amsterdam  Supply  Co.  is  a  company  engaged  in  the  business  of 
purchasing  for  a  commission  or  brokerage,  supplies,  other  than 
leaf  tobacco,  its  principal  customers  being  defendant  corporations 
herein.  It  has  $235,000  at  par  of  stock,  all  held  in  varying  amounts 
by  certain  corporation  defendants,  one  or  the  other  of  your  petition- 
ers, and  a  surplus  of  $127,058.74. 

It  is  proposed  that  Amsterdam  Supply  Co.  be  dissolved,  convert- 
ing its  assets  into  cash  and  distributing  them  to  its  stockholders. 

B. 

ABROGATION   OF   FOREIGN   RESTRICTIVE   COVENANTS. 

Under  the  contracts  of  September  27,  1902,  the  Imperial  Tobacco 
Co.  (of  Great  Britain  and  Ireland,  Ltd.)  and  certain  of  its  directors 

1  United  States  of  America  v.  American  Tobacco  Company.  In  the  Circuit 
Court  of  the  United  States  for  the  Southern  District  of  New  York,  Opinions  of 
the  Court,  and  Decree  pp.  36-69.  The  draft  here  given  is  from  a  copy  of  the 
decree  in  Hearings  before  the  Committee  on  Interstate  Commerce,  United 
States  Senate,  62nd  Cong.  2nd  Sess.  1911-1912  pp.  290  ff.  This  accounts  for 
slight  differences  in  punctuation,  the  use  of  italics  and  abbreviations. — Ed. 

440 


Methods  of  Dissolution  441 

agreed  not  to  engage  in  the  business  of  manufacturing  or  selling 
tobacco  in  the  United  States,  the  American  Tobacco  Co.  and  Ameri- 
can Cigar  Co.  and  certain  of  their  directors  agreed  not  to  engage 
in  the  business  of  manufacturing  or  selling  tobacco  in  Great  Britain 
and  Ireland;  and  the  American  Tobacco  Co.,  American  Cigar  Co., 
and  the  Imperial  Tobacco  Co.  agreed  not  to  engage  in  the  business 
of  manufacturing  or  selling  tobacco  in  countries  other  than  Great 
Britain  and  Ireland  and  the  United  States.  Under  the  provisions 
of  these  contracts  British-American  Tobacco  Co.  (Ltd.)  was 
organized  and  took  over  the  export  businesses  of  the  American 
Tobacco  Co.,  and  the  Imperial  Tobacco  Co.,  with  factories,  mate- 
rials, and  supplies. 

It  is  proposed  that  the  covenants  herein  just  described  as  well 
as  all  covenants  restricting  the  right  of  any  company  or  individual 
in  the  combination  to  buy,  manufacture,  or  sell  tobacco  or  its  prod- 
ucts, be  rescinded  by  the  affirmative  action  of  the  respective 
parties  thereto  who  are  parties  to  this  suit,  except  such  of  said 
covenants,  whether  or  not  contained  in  the  contracts  of  Septem- 
ber 27,  1902,  as  (a)  relate  wholly  to  business  in  foreign  countries  and 
are  covenants  the  benefit  whereof  has  been  assigned  or  transferred 
to  other  parties;  or  (b)  are  covenants  exclusively  between  foreign 
corporations  and  relating  wholly  to  business  in  or  between  foreign 
countries;  and  that  the  said  contracts  of  September  27,  1902,  be 
altogether  terminated  so  far  as  they  impose  any  obligations  upon 
any  of  the  parties  thereto  to  furnish  or  to  refrain  from  furnishing 
manufactured  tobaccos  to  any  party,  each  company  to  treat  as 
its  own,  but  only  to  the  extent  provided  for  in  said  contracts,  all 
brands  and  trademarks  which  by  said  contracts  it  was  given  the 
right  to  manufacture  and  sell,  the  said  rights  having  been  perpetual 
and  constituting  in  effect  a  conveyance  of  the  brands  and  trade- 
marks used  for  the  countries  in  which  they  were  so  used  by  each  of 
said  companies  as  aforesaid. 

C. 

ABROGATION   OF   DOMESTIC   RESTRICTIVE   COVENANTS. 

It  is  proposed  that  covenants  given  by  vendor  corporations, 
partnerships,  or  individuals,  or  by  stockholders  of  vendor  corpora- 
tions, to  vendee  corporations  defendants  herein,  not  to  engage 
in  the  tobacco  business  or  any  other  business  in  any  way  embraced 
in  the  combination,  be  terminated  so  that  all  such  covenanters 


442  Industrial  Combinations  and  Trusts 

shall  be  at  liberty  to  engage  in  the  business  of  buying,  manufactur- 
ing, and  dealing  in  tobacco  and  its  products  just  as  if  such  covenants 
had  not  been  made. 

D. 

DISINTEGRATION   OF  ACCESSORY  COMPANIES. 

(i)  The  Conley  Foil  Co. — The  Conley  Foil  Co.  has  a  capital 
stock  of  $825,000  at  par,  all  of  one  class,  of  which  the  American 
Tobacco  Co.  owns  $495,000  at  par,  the  balance  being  held  by  per- 
sons not  defendants  nor  connected  with  defendants.  It  is  engaged 
in  the  business  of  manufacturing  tin  foil,  a  product  used  largely 
by  tobacco  manufacturers,  but  having  other  uses  as  well.  The 
Conley  Foil  Co.  has  a  plant  in  New  York  City,  and  it  owns  all  the 
stock  and  bonds  of  the  Johnston  Tin  Foil  &  Metal  Co.,  which  has 
a  plant  in  St.  Louis.  The  value  of  the  output  for  the  year  1910  of 
the  Conley  Foil  Co.  was  $1,780,526.85,  with  a  net  profit  of  $273,- 
299.82,  and  the  Johnston  Tin  Foil  &  Metal  Co.  had  an  output  for 
the  year  1910  of  the  value  of  $676,520.05  and  net  profits  of  $66,255.- 
16.  On  December  31,  1910,  the  Conley  Foil  Co.  had  tangible 
assets  (excluding  its  securities  of  the  Johnston  Tin  Foil  &  Metal 
Co.)  of  $1,215,321,  and  the  Johnston  Tin  Foil  &  Metal  Co.  had 
assets  of  the  value  of  $379,802.11.  The  Conley  Foil  Co.  has  a 
surplus  exceeding  the  value  of  the  securities  of  the  Johnston  Tin 
Foil  &  Metal  Co. 

It  is  proposed  that  the  Conley  Foil  Co.  cancel  the  bonds  of  the 
Johnston  Tin  Foil  &  Metal  Co.  held  by  it,  to  wit,  $100,000  par 
value,  and  distribute  to  its  stockholders  its  holdings  of  stock  of  the 
Johnston  Tin  Foil  &  Metal  Co.,  to  wit,  3,000  shares,  all  of  one  class. 

The  American  Tobacco  Co.,  being  a  stockholder  of  the  Conley 
Foil  Co.,  will  participate  in  this  distribution,  and  will  in  turn  dis- 
tribute its  dividend,  as  well  as  its  stock  in  the  Conley  Foil  Co.,  to 
its  common-stock  holders  as  hereinafter  set  forth. 

(2)  Mac  Andrews  &  Forbes  Co. — MacAndrews  &  Forbes  Co.  is  a 
company  having  a  common  capital  stock  of  $3,000,000  at  par,  of 
which  the  American  Tobacco  Co.  owns  $2,112,900  at  par,  the 
balance  being  held  by  persons  not  defendants  nor  connected  with 
defendants  (except  less  than  3^-  per  cent  of  the  common  stock 
held  by  R.  J.  Reynolds  Tobacco  Co.),  and  $3,758,300  at  par  of 
6  per  cent  nonvoting  preferred  stock,  of  which  the  American 
Tobacco  Co.  holds  $750,000  at  par,  the  balance  being  held  by 
persons  not  defendants  nor  connected  with  defendants.     It  is 


Methods  of  Dissolution  443 

engaged  in  the  production  of  licorice  paste,  with  two  plants — one 
at  Camden,  N.  J.,  and  the  other  at  Baltimore,  Md.  It  had  tangible 
assets,  December  31,  1910,  of  the  value  of  $5,683,824.89  (including 
$2,118,448.36  licorice  root,  with  plants  for  its  collection  in  foreign 
countries),  and  its  sales  for  the  year  1910  were  of  the  value  of 
$4,427,023.44.  MacAndrews  &  Forbes  Co.  succeeded  to  the 
business  of  MacAndrews  &  Forbes,  a  partnership,  who  were  pioneers 
in  this  country  in  the  production  of  licorice  paste,  and  who  had, 
for  many  years  before  any  acquisitions  of  other  business  and 
before  they  had  any  connection  with  the  other  defendants  herein, 
more  than  50  per  cent  of  all  the  licorice-paste  business  of  the 
United  States. 

It  is  proposed  that  a  new  corporation  be  organized,  called  the 
J.  S.  Young  Co.,  and  that  it  shall  acquire  the  Baltimore  plant  of 
MacAndrews  &  Forbes  Co.,  with  the  assets  used  therein  and  in 
connection  therewith,  of  a  total  value  of  $1,000,000,  and  the  brands 
of  licorice  paste  manufactured  in  said  Baltimore  plant;  that  it 
issue  in  payment  therefor,  with  the  good  will  connected  therewith, 
$1,000,000  at  par  of  7  per  cent  preferred  nonvoting  stock  and 
$1,000,000  at  par  of  common  stock;  that  MacAndrews  &  Forbes 
Co.  distribute  the  common  stock  of  the  J.  S.  Young  Co.  as  a  divi- 
dend to  its  common-stock  holders,  charging  the  amount  thereof  to 
its  surplus  account;  that  MacAndrews  &  Forbes  Co.  offer  to  its 
preferred-stock  holders  proportionately  to  exchange  the  7  per  cent 
preferred  stock  of  the  J.  S.  Young  Co.  at  par  for  their  preferred 
stock  of  MacAndrews  &  Forbes  Co.;  that  so  far  as  the  preferred 
stock  of  MacAndrews  &  Forbes  Co.  is  thus  exchanged,  it  be  re- 
tired; that  so  far  as  this  preferred  stock  of  the  J.  S.  Young  Co.  is 
not  forthwith  thus  exchanged,  MacAndrews  &  Forbes  Co.  be  en- 
joined from  using  it  to  exercise,  or  otherwise  exercising  or  attempt- 
ing to  exercise,  influence  or  control  over  the  J.  S.  Young  Co.;  and 
with  the  further  provision  that  on  or  before  January  1,  1915,  the 
whole  of  this  preferred  stock  of  the  J.  S.  Young  Co.,  not  theretofore 
taken  out  of  the  treasury  of  MacAndrews  &  Forbes  Co.  by  exchange 
as  aforesaid,  be  disposed  of  by  MacAndrews  &  Forbes  Co. 

This  would  give  to  MacAndrews  &  Forbes  Co.  a  licorice  business, 
including  Spanish  licorice  and  powdered  goods,  of  the  net  selling 
value,  based  upon  the  year  1910,  of  $2,514,184.64,  of  which  $2,214,- 
127.51  arise  from  sales  of  one  brand,  to  wit,  the  old  "Ship"  brand. 
The  J.  S.  Young  Co.,  upon  the  basis  of  the  business  for  the  year 
1910,  would  have  an  output  of  the  net  selling  value  of  $1,201,109.86. 


444  Industrial  Combinations  and  Trusts 

The  American  Tobacco  Co.,  being  a  holder  of  the  common  stock 
of  MacAndrews  &  Forbes  Co.,  will  participate  in  the  distribution 
above  provided  and  will  in  turn  distribute  its  dividend,  as  well  as 
its  stock  in  MacAndrews  &  Forbes  Co.,  to  its  common-stock  holders 
as  hereinafter  set  forth. 

(3)  American  Snnjf  Co. — American  Snuff  Co.  is  a  manufacturer 
of  snuff.  It  holds  all  of  the  stock  of  De  Voe  Snuff  Co.,  to  wit, 
$50,000  at  par;  and  one-half,  to  wit,  $26,000  at  par,  of  the  stock 
of  National  Snuff  Co.  It  owns  no  other  interest  in  any  company 
manufacturing  or  selling  snuff. 

It  is  proposed  that  there  be  organized  two  new  snuff  companies, 
one  to  be  called  the  George  W.  Helme  Co.  and  the  other  Weyman- 
Bruton  Co.,  and  that  American  Snuff  Co.  convey  to  these  two 
companies,  respectively,  factories,  with  the  brands  manufactured 
in  them,  as  follows:  To  the  George  W.  Helme  Co.  the  factories 
at  Helmetta,  N.  J.,  and  Yorklyn,  Del.,  except  factory  No.  5;  to 
Weyman-Burton  Co.  the  factories  at  Chicago  and  Nashville,  also  all 
the  stock  of  De  Voe  Snuff  Co.,  and  the  one-half  of  the  stock  of  Na- 
tional Snuff  Co.  held  by  American  Snuff  Co.  Based  upon  the  busi- 
ness for  the  year  1910  and  the  assets  at  the  end  of  the  year,  with 
proper  provision  for  leaf,  materials,  cash  and  book  accounts  for 
the  two  vendee  companies,  this  would  leave  the  three  companies 
equipped  as  follows: 

Manufacturing  tangible  assets. 

American  Snuff  Co. 1  $5,075,969.72 

George  W.  Helme  Co. 4,909,000.40 

Weyman-Bruton  Co. 3,691,588.20 

Sales  value  during  igio. 

American  Snuff  Co. $5,520,422.15 

George  W.  Helme  Co. 4,494,556.66 

Weyman-Bruton  Co. 4,297,486.71 

Net  income. 

American  Snuff  Co. 1  $1,591,280.49 

George  W.  Helme  Co. 1,259,280.98 

Weyman-Bruton  Co. 1,293,759.39 

1  American  Snuff  Co.  holds  securities  not  connected  with  the  snuff  business, 
to  wit:  Stock  and  bonds  of  the  American  Tobacco  Co.,  preferred  stock  of  Amer- 
ican Cigar  Co.,  aggregating  in  book  value  $2,530,216.69,  upon  which  American 
Snuff  Co.  received  in  interest  and  dividends  during  the  year  1910,  $176,680. 


Methods  of  Dissolution  445 

Each  of  these  vendee  corporations  will  pay  for  the  property  and 
business  conveyed  to  it  by  the  issue  of  $4,000,000  at  par  of  7  per 
cent  voting  preferred  stock  and  $4,000,000  at  par  of  common  stock. 
American  Snuff  Co.  will  thus  receive  the  $16,000,000  at  par  of  these 
stocks  into  its  treasury,  and  will  distribute  to  its  common-stock 
holders,  as  a  dividend,  the  common  stock  aggregating  $8,000,000, 
to  be  charged  to  its  surplus  account.  American  Snuff  Co.  will  offer 
to  its  preferred-stock  holders  proportionately  to  exchange  these 
7  per  cent  preferred  stocks  of  the  George  W.  Helme  Co.  and  the 
Weyman-Bruton  Co.  for  their  preferred  stock  of  American  Snuff 
Co.  at  par.  So  much  of  the  preferred  stock  of  American  Snuff  Co. 
as  is  thus  exchanged  will  be  retired.  As  to  so  much  of  the  preferred 
stocks  of  the  George  W.  Helme  Co.  and  the  Weyman-Bruton  Co. 
as  is  not  forthwith  thus  exchanged,  American  Snuff  Co.  to  be  en- 
joined from  voting  it,  or  using  it  to  exercise,  or  otherwise  exercising 
or  attempting  to  exercise,  influence,  or  control  over  the  George 
W.  Helme  Co.  or  the  Weyman-Bruton  Co. ;  and  on  or  before  Jan- 
uary 1,  19 1 5,  all  of  these  preferred  stocks  of  the  George  W.  Helme 
Co.  and  the  Weyman-Bruton  Co.  not  theretofore  taken  out  of  the 
treasury  of  American  Snuff  Co.  by  exchange  as  aforesaid  to  be  dis- 
posed of  by  American  Snuff  Co. 

The  American  Tobacco  Co.,  being  a  holder  of  the  common  stock 
of  American  Snuff  Co.,  will  participate  in  the  distribution  above 
provided,  and  will,  in  turn,  distribute  its  dividends  as  well  as  its 
stock  in  American  Snuff  Co.,  including  that  to  be  acquired  from 
P.  Lorillard  Co.,  to  its  common-stock  holders  as  hereinafter  set 
forth. 

(4)  American  Stogie  Co. — American  Stogie  Co.  is  a  corporation 
whose  only  asset  is  all  of  the  issued  stock  of  Union-American  Cigar 
Co.,  which  latter  company  has  cigar  factories  located  at  Pittsburgh, 
Allegheny,  Lancaster,  and  Newark.  Its  total  production,  based 
upon  business  for  the  year  1910,  is  only  1.58  per  cent  of  the  entire 
production  of  cigars  in  the  United  States  in  volume,  and,  as  these 
petitioners  believe,  about  the  same  percentage  in  value.  American 
Stogie  Co.  has  $976,000  at  par  of  7  per  cent  cumulative  preferred 
stock,  of  which  American  Cigar  Co.  owns  $40,000  at  par,  and  none 

It  is  proposed  that  American  Snuff  Co.  sell  or  otherwise  dispose  of  these  secur- 
ities within  three  years,  and  that  in  the  meantime  they  be  held  under  an  injunc- 
tion as  is  provided  in  this  paragraph  with  respect  to  securities  of  the  George  W. 
Helme  Co.  and  Weyman-Bruton  Co.  to  be  temporarily  held  by  it.  It  also  owns 
all,  to  wit,  $100,000  at  par  of  the  stock  of  Garrett  Real  Estate  Co.,  which  will 
be  dissolved  and  liquidated. 


446  Industrial  Combinations  and  Trusts 

of  the  other  defendants  own  any;  it  has  $10,879,000  at  par  of  com- 
mon stock,  of  which  American  Cigar  Co.  owns  $7,303,775  at  par, 
and  none  of  the  other  defendants  own  any.  There  are  accumulated 
and  unpaid  dividends  on  the  preferred  stock  to  the  amount  of 
$399,000  as  of  December  31,  1910. 

It  is  proposed  that  American  Stogie  Co.  dissolve,  with  leave 
granted  to  the  trustees  in  dissolution  to  either  convert  the  assets 
into  cash,  and  distribute  them  among  the  stockholders  according 
to  their  rights,  or  to  effect  such  reorganization  as  they  may  be  able 
to  effect,  provided  that  in  either  event  there  shall  be  a  separation 
into  at  least  two  different  ownerships  of  the  factories  and  businesses 
now  owned  and  operated  by  Union-American  Cigar  Co.  If  the 
dissolution  is  followed  by  a  conversion  of  the  assets  of  American 
Stogie  Co.  into  cash,  American  Cigar  Co.  will  take  such  cash  as  it 
may  receive  into  its  treasury;  if  it  receives  upon  such  dissolution 
securities  of  cigar-manufacturing  concerns,  it  will  distribute  such 
as  a  dividend  to  its  common-stock  holders,  to  be  charged  to  its  sur- 
plus as  hereinafter  set  forth. 

(5)  American  Cigar  Co. — American  Cigar  Co.  is  a  manufacturer 
of  cigars.  It  has  various  factories  of  its  own,  and  it  owns  all  or  a 
part  of  the  stock  of  several  companies  engaged  in  the  manufacture 
of  cigars,  all  of  which  companies  have  been  organized  by  it  and 
which  have  received  from  it  conveyances  of  part  of  its  business, 
operating  in  this  way  as  separate  corporations  for  trade  purposes. 
Among  these  companies  is  Federal  Cigar  Co. 

American  Cigar  Co.  also  owns  a  part  of  the  stock  of  Havana 
Tobacco  Co.,  which  controls  factories  manufacturing  cigars  in 
Havana;  and  a  part  of  the  stock  of  Porto  Rican- American  Tobacco 
Co.,  engaged  in  the  manufacture  of  cigars  and  cigarettes  in  Porto 
Rico;  and  half  of  the  stock  of  Porto  Rican  Leaf  Tobacco  Co.,  en- 
gaged in  growing  tobacco  in  Porto  Rico.  American  Cigar  Co.  it- 
self uses  large  quantities  of  Porto-Rican  grown  leaf.  Neither 
American  Cigar  Co.  nor  any  of  the  companies  in  which  it  is  inter- 
ested, except  Havana  Tobacco  Co.  and  Porto  Rican-American 
Tobacco  Co.,  is  engaged  in  the  manufacture  of  cigars  outside  of 
the  United  States. 

American  Cigar  Co.,  including  with  its  production  the  production 
of  companies  of  which  it  owns  in  whole  or  in  part  the  stock,  has,  in 
volume,  based  on  the  business  for  the  year  1910,  13.36  per  cent  of 
the  cigar  business  of  the  United  States,  and  in  value,  as  your  peti- 
tioners believe,  substantially  the  same  percentage.     Havana  To- 


Methods  of  Dissolution  447 

bacco  Co.  has,  directly  or  indirectly,  control  of  24.06  per  cent  of  the 
total  production  of  cigars  in  Cuba,  46  per  cent  of  the  total  exporta- 
tion of  cigars  from  Cuba  to  all  countries  of  the  world,  including  the 
United  States,  and  3S.15  per  cent  of  the  total  exportation  of  cigars 
from  Cuba  to  the  United  States. 

It  is  proposed  that  American  Cigar  Co.  dispose  of  properties 
belonging  to  it,  and  thus  disintegrate  its  business,  as  follows: 

(a)  That  it  sell  to  the  American  Tobacco  Co.  for  cash  its  stock, 
being  all  thereof,  of  Federal  Cigar  Co.,  at  a  fair  price,  to  wit., 
$3,065,616.05. 

(b)  That  it  sell  to  the  American  Tobacco  Co.  for  cash  the  stock 
it  owns  of  Porto  Rican-American  Tobacco  Co.,  to  wit.,  $657,600 
at  par,  at  a  fair  price,  to  wit.,  $350  per  share,  or  $2,301,600. 

(c)  That  American  Cigar  Co.  dispose  of  any  interest  in  American 
Stogie  Co.  by  receiving  cash  proceeds  of  its  stock  in  dissolution 
thereof,  if  American  Stogie  Co.  upon  dissolution  converts  its  assets 
into  cash;  or  by  distributing  as  a  dividend  to  its  common-stock 
holders  out  of  its  surplus  the  securities  which  it  receives  upon  the 
dissolution  of  American  Stogie  Co.,  if  it  receives  such. 

All  stocks  thus  to  be  acquired  by  the  American  Tobacco  Co.  from 
American  Cigar  Co.  are  to  be  disposed  of  by  the  American  Tobacco 
Co.  as  hereinafter  set  out. 

E. 

DISTRIBUTION  BY  THE  AMERICAN  TOBACCO  CO.  OF  STOCKS  OWNED  OR 
TO  BE  ACQUIRED  BY  IT. 

(1)  Immediate  distribution  of  stocks. — The  American  Tobacco 
Co.  will  buy  from  P.  Lorillard  Co.,  for  cash  at  par,  the  11,247  shares 
of  the  preferred  stock  of  American  Snuff  Co.  held  by  P.  Lorillard 
Co.,  and  will  receive,  as  the  sole  common-stock  holder  of  P.  Loril- 
lard Co.  and  by  way  of  dividends,  34,594  shares  of  the  common 
stock  of  American  Snuff  Co.  held  by  P.  Lorillard  Co. 

The  American  Tobacco  Co.  will  distribute  among  its  common- 
stock  holders  by  way  of  dividends,  and  to  be  charged  to  its  surplus, 
all  of  its  securities  of  the  following-described  classes,  whether  now 
owned  by  it  or  bought  by  it  from  American  Cigar  Co.,  as  hereinbe- 
fore set  forth,  or  bought  by  it  from  P.  Lorillard  Co.,  as  just  hereinbe- 
fore set  forth,  or  received  by  it  by  way  of  dividends  from  any  of  the 
accessory  companies  defendant,  as  hereinbefore  set  forth,  to  wit: 
American  Snuff  Co.  common  stock;  American  Snuff  Co.  preferred 
stock;  George  W.  Helme  Co.  common  stock;  Weyman-Bruton  Co. 


448  Industrial  Combinations  and  Trusts 

common  stock;  Mac  Andrews  &  Forbes  Co.  common  stock;  J.  S. 
Young  Co.  common  stock;  the  Conley  Foil  Co.  stock;  the  Johnston 
Tin  Foil  &  Metal  Co.  stock;  R.  J.  Reynolds  Tobacco  Co.  stock; 
Corporation  of  United  Cigar  Stores  stock;  British-American  To- 
bacco Co.  (Ltd.),  ordinary  shares;  Porto  Rican-American  Tobacco 
Co.  stock;  American  Stogie  Co.  stock  (or  what  is  received  by  way 
of  dividends  from  American  Cigar  Co.  upon  dissolution  of  American 
Stogie  Co.). 

Including  the  amount  to  be  paid  to  American  Cigar  Co.  and  P. 
Lorillard  Co.  for  such  of  these  securities  as  are  to  be  acquired  by  the 
American  Tobacco  Co.  from  them,  respectively,  and  excluding 
those  to  be  acquired  by  way  of  dividends,  and  which  therefore  do 
not  affect  the  surplus  of  the  American  Tobacco  Co.,  never  having 
been  set  up  on  its  books,  these  securities  had  a  book  value  as  of 
December  31,  1910,  of  $35,011,865.03.  The  earning  capacity  of  all 
the  above  securities  thus  to  be  distributed,  based  upon  the  results 
of  the  year  1910,  is  $9,860,410.76,  though  not  all  thereof  was  dis- 
tributed as  dividends. 

(2)  Deferred  disposition  of  stocks. — The  American  Tobacco  Co. 
will  sell  or  otherwise  dispose  of,  or  distribute  by  way  of  dividends 
to  its  common-stock  holders  out  of  its  surplus  at  the  time  existing, 
before  January  1,  1915,  all  of  its  holdings  of  the  following  securities: 
British- American  Tobacco  Co.  (Ltd.)  nonvoting  preference  shares; 
the  Imperial  Tobacco  Co.  (of  Great  Britain  and  Ireland  (Ltd.) 
ordinary  shares;  Corporation  of  United  Cigar  Stores  bonds;  Mac- 
Andrews  &  Forbes  Co.  nonvoting  preferred  stock. 

During  the  time  these  securities  are  left  in  the  treasury  of  the 
American  Tobacco  Co.  the  American  Tobacco  Co.  to  be  enjoined 
from  voting  any  thereof  that  under  the  terms  thereof  might  be 
voted,  or  using  any  thereof  to  exercise,  or  otherwise  exercising  or 
attempting  to  exercise,  influence  or  control  over  the  said  companies 
which  issued  the  said  securities,  respectively,  and  from  gaining 
possession  of  any  of  the  said  companies  by  buying  in  at  a  foreclo- 
sure had  under  any  of  the  securities  for  any  default  with  respect 
thereto  or  otherwise. 


SALE  BY  THE  AMERICAN  TOBACCO  CO.  OF  MANUFACTURING  ASSETS 
AND  BUSINESS  TO  COMPANIES  TO  BE  FORMED. 

(1)  There  will  be  organized  a  new  corporation  called  Liggett  & 
Myers  Tobacco  Co.  and  a  new  corporation  called  P.  Lorillard  Co., 


Methods  of  Dissolution  449 

and  the  American  Tobacco  Co.  will  sell,  assign,  and  convey  to 
these  two  companies  factories,  plants,  brands,  and  businesses  and 
capital  stocks  of  tobacco-manufacturing  corporations,  as  follows: 

TO  LIGGETT  &   MYERS   TOBACCO  CO. 

Liggett  &  Myers  branch  of  the  American  Tobacco  Co.,  engaged  in 
the  manufacture  of  plug  tobacco  at  St.  Louis,  with  the  brands  con- 
nected therewith. 

Spaulding  &  Merrick,  a  company  of  which  the  American  Tobacco 
Co.  owns  and  has  always  owned  all  the  stock,  engaged  in  Chicago  in 
the  manufacture  of  fine-cut  tobacco  and  smoking  tobacco. 

Allen  &  Ginter  branch  of  the  American  Tobacco  Co.,  engaged  in 
the  manufacture  of  cigarettes,  at  Richmond,  Va.,  and  the  brands 
connected  therewith  (this  does  not  include  the  brand  "Sweet  Cap- 
oral,"  made  partly  there  and  partly  at  New  York). 

Chicago  branch  of  the  American  Tobacco  Co.,  a  factory  at  Chicago 
engaged  in  the  manufacture  of  smoking  tobacco,  with  the  brands  con- 
nected therewith. 

Catlin  branch  of  the  American  Tobacco  Co.,  a  factory  at  St.  Louis 
engaged  in  the  manufacture  of  smoking  tobacco,  with  the  brands  con- 
nected therewith. 

Nail  &  Williams  Tobacco  Co.,  a  company  of  which  the  American 
Tobacco  Co.  owns  all  the  stock,  engaged  in  the  manufacture  of  plug 
and  smoking  tobacco  at  Louisville,  Ky. 

The  John  Bollman  Co.,  a  company  engaged  in  the  manufacture  of 
cigarettes  at  San  Francisco;  of  this  corporation  the  American  Tobacco 
Co.  owns  90  per  cent  of  the  stock,  which  it  is  proposed  to  turn  over 
to  the  Liggett  &  Myers  Tobacco  Co. 

Pinkerton  Tobacco  Co.,  a  corporation  engaged  in  the  manufacture 
of  scrap  tobacco  (a  kind  of  smoking  tobacco)  at  Toledo,  Ohio;  of 
this  corporation  the  American  Tobacco  Co.  owns  77 J  per  cent  of 
the  stock,  which  it  is  proposed  to  turn  over  to  the  Liggett  &  Myers 
Tobacco  Co. 

W.  R.  Irby  branch  of  the  American  Tobacco  Co.,  at  New  Orleans, 
engaged  in  the  manufacture  of  cigarettes  and  smoking  tobacco,  the 
principal  brands  being  "Home  Run"  and  "King  Bee." 

The  Duke-Durham  branch  of  the  American  Tobacco  Co.,  engaged 
in  the  manufacture  of  cigarettes  and  smoking  tobacco  at  Durham, 
N.  C;  principal  cigarette  brands,  "Piedmont"  and  "American 
Beauty";  principal  smoking  tobacco  brand,  "Duke's  Mixture." 


450  Industrial  Combinations  and  Trusts 

Two  little  cigar  factories  located,  the  one  at  Philadelphia  and  the 
other  at  Baltimore,  branches  of  the  American  Tobacco  Co. ;  principal 
brand,  "Recruits." 

to  p.  lorillard  CO. 

All  the  rights  of  the  American  Tobacco  Co.  in  the  present  P. 
Lorillard  Co.,  to  wit:  All  the  common  stock  and  $1,596,100  at  par 
out  of  a  total  issue  of  $2,000,000  of  8  per  cent  preferred  stock;  it  is 
contemplated  that  as  a  part  of  these  reorganizations  the  Lorillard 
Co.,  as  at  present  constituted,  be  wound  up  and  the  new  company- 
be  organized,  taking  over  assets  of  the  P.  Lorillard  Co. 

S.  Anargyros,  a  company  enagged  l  in  the  manufacture  of  ciga- 
rettes, in  which  the  American  Tobacco  Co.  owns  all  the  stock,  and  of 
which  it  has  always  owned  all  the  stock. 

Luhrman  &  Wilbern  Tobacco  Co.,  a  company  engaged  in  the 
manufacture  of  scrap  tobacco  (a  kind  of  smoking  tobacco),  of  which 
the  American  Tobacco  Co.  owns  and  has  for  many  years  owned,  all 
the  stock. 

Philadelphia  branch  B,  at  Philadelphia,  Wilmington  branch  B,  at 
Wilmington,  Penn  Street  branch  at  Brooklyn,  Danville  branch  B,  at 
Danville,  and  Ellis  branch  B,  at  Baltimore,  branches  of  the  American 
Tobacco  Co.,  manufacturing  little  cigars,  the  principal  brand  being 
"Between  the  Acts." 

Federal  Cigar  Co.,  a  company  all  of  whose  stock  is,  and  has  always 
been,  owned  by  American  Cigar  Co.,  but  which,  as  hereinbefore  pro- 
vided, is  to  be  purchased  for  cash  by  the  American  Tobacco  Co. 

Each  of  these  conveyances  to  include  proper  and  adequate  storage 
houses,  leaf  tobacco,  and  other  materials  and  supplies,  provision  for 
book  accounts,  including  in  each  case  a  ratable  proportion  of  the  cash 
held  by  the  American  Tobacco  Co.  on  December  31,  1910,  so  that 
each  of  the  new  corporations  will  be  fully  equipped  for  the  conduct 
of  the  business  of  manufacturing  and  dealing  in  tobacco. 

(2)  Resources  and  capitalization  of  companies  and  provisions  for 
exchanging  and  retiring  securities  of  American  Tobacco  Co. — The 
American  Tobacco  Co.  has  securities  issued  and  outstanding  as 
follows: 

6  per  cent  bonds     --- -    -    $52,882,650 

4  per  cent  bonds  (including  outstanding  4  per  cent 

bonds  of  Consolodated x  Tobacco  Co.)    -    -    -    -      51,354,100 

1  Thus  in  original. — Ed. 


Methods  of  Dissolution  451 

6  per  cent  preferred  stock    ---------      78,689,100 

Common  stock  -------------      40,242,400 

The  American  Tobacco  Co.  in  October,  1904,  immediately  after 
the  merger,  had  an  outstanding  issue  of  its  own  4  per  cent  bonds  and 
the  Consolidated  Tobacco  Co.  4  per  cent  bonds  which  it  assumed, 
amounting  to  $78,689,100,  but  it  has  purchased  on  the  market  and 
retired  $27,335,000  at  par  of  these  4  per  cent  bonds,  charging  the 
amount  thus  expended  to  surplus.  The  6  per  cent  bonds  and  4  per 
cent  bonds  aforesaid  are  what  are  ordinarily  known  as  debenture 
bonds,  and  are  issued  under  a  trust  indenture  which  imposes  a  gen- 
eral charge  on  the  property,  income,  and  earnings  of  the  company  in 
favor,  first,  of  the  6  per  cent  bonds,  and,  second,  of  the  4  per  cent 
bonds.  The  American  Tobacco  Co. ,  after  the  reduction  of  the  surplus 
through  the  acquisition  by  it  of  4  per  cent  bonds  as  aforesaid,  had 
on  December  31,  1910,  a  surplus  of  $61,119,991.63,  which  will  be 
increased  by  the  surplus  earnings  of  the  current  year.  The  distribu- 
tion of  securities  herein  provided  for  to  be  forthwith  made,  would 
diminish  the  said  surplus  by  $35,011,865.03,  the  book  value  of 
securities  to  be  so  distributed.  This  book  value  is  less  than  actual 
value,  but  in  view  of  the  fact  that  none  of  the  assets  of  the  American 
Tobacco  Co.  are  overvalued,  the  advance  of  the  book  value  of  the 
securities  to  be  distributed  as  hereinbefore  set  forth  to  their  actual 
value,  would  operate  at  the  same  time  to  increase  the  surplus  of  the 
company,  and  so  its  surplus,  after  such  distribution,  would  remain 
just  the  same  as  though  the  advance  to  actual  value  had  not  been 
made  on  the  books  of  the  company. 

The  properties  to  be  conveyed  to  the  Liggett  &  Myers  Tobacco  Co. 
and  P.  Lorillard  Co.,  based  upon  conditions  as  of  December  31,  1910, 
the  last  completed  year,  including  in  such  conveyances  the  proper 
and  proportionate  storage  houses,  leaf  tobacco,  supplies  and  mate- 
rials, and  cash,  but  without  anything  for  value  of  brands,  trademarks, 
formulae,  recipes,  and  good  will,  but  including  stocks  of  com- 
panies, are  of  the  value  of  $30,607,261.96  to  Liggett  &  Myers  To- 
bacco Co.  and  $28,091,748.86  to  P.  Lorillard  Co.  So  far  as  these 
conditions  shall  be  changed  before  the  day  of  the  conveyance,  any 
deficiency  is  to  be  made  good  in  cash,  so  that  these  two  companies 
will  have  said  amounts  in  tangible  assets  as  aforesaid,  useful,  and 
such  as  have  been  used,  in  the  manufacture  of  the  brands  to  be  con- 
veyed to  them,  respectively,  and  cash.  The  American  Tobacco  Co. 
will  be  left  with  tangible  assets,  including  stocks  of  companies  em- 


452  Industrial  Combinations  and  Trusts 

ployed  in  manufacturing  tobacco  and  its  products,  cash  and  bills  and 
accounts  receivable  of  the  value  of  $53,408,498.94  as  of  December  31, 
1910.  The  profits  earned  during  the  year  1910  on  the  brands  and 
businesses  to  be  conveyed  by  the  American  Tobacco  Co.  to  Liggett 
&  Myers  Tobacco  Co.  amounted  to  $7,468,172.02,  and  the  profits  on 
the  brands  and  businesses  to  be  conveyed  by  the  American  Tobacco 
Co.  to  P.  Lorillard  Co.  amounted  to  $5,264,729.38. 

It  is  proposed  that  the  value  of  the  brands,  trade-marks,  recipes, 
formula;,  and  good  will  to  be  sold  to  each  of  these  companies  be  de- 
termined by  their  earning  capacity,  based  upon  the  results  for  the 
year  19 10,  so  that  each  shall  have  an  earning  capacity  of  11.02  per 
cent  per  annum  upon  its  total  property,  including  both  tangible 
property  and  brand  value  and  good  will.  Upon  this  basis  the  con- 
sideration to  be  paid  by  the  Liggett  &  Myers  Tobacco  Co.  will  be 
$30,607,261.96,  value  of  tangible  assets  as  above  stated,  and  $36,840,- 
237.04,  value  of  brands,  trade-marks,  recipes,  formulas,  and  good  will, 
making  a  total  of  $67,447,499;  and  the  consideration  to  be  paid  by 
the  P.  Lorillard  Co.  will  be  $28,091,748.86,  value  of  tangible  assets  as 
above  stated,  and  $19,460,752.14,  value  of  brands,  trade-marks,  re- 
cipes, formulae,  and  good  will,  making  a  total  of  $47,552,501.  The 
brands,  trade-marks,  recipes,  formulas,  and  good  will  of  the  American 
Tobacco  Co.  on  December  31,  1910,  were  of  the  book  value  of 
$101,324,964.07.  The  payments  for  brand  value,  etc.,  to  the  Amer- 
ican Tobacco  Co.  to  be  made  by  Liggett  &  Myers  Tobacco  Co.  and 
P.  Lorillard  Co.,  as  aforesaid,  makes  an  aggregate  of  $56,300,989.18, 
and  would  thus  leave  the  book  value  of  brands,  trade-marks,  recipes, 
formulae,  and  good  will  retained  by  the  American  Tobacco  Co.  at 
$45,023,974.89,  which  added  to  the  $53,408,498.94  of  tangible  man- 
ufacturing assets  to  be  retained  by  the  American  Tobacco  Co.,  will 
make  the  total  book  value  of  manufacturing  property  to  be  retained 
by  that  company  $98,432,473.83,  upon  which  its  earnings,  based  upon 
the  results  for  the  year  1910,  would  be  $11,369,809.82,  or  11.55 
per  cent. 

The  Liggett  &  Myers  Tobacco  Co.  and  the  P.  Lorillard  Co.  would 
pay  for  these  conveyances,  therefore,  the  aggregate  as  aforesaid,  to 
wit: 

Liggett  &  Myers  Tobacco  Co. $67,447,499 

P.  Lorillard  Co. 47,552,501 

Aggregating 115,000,000 


Methods  of  Dissolution 


453 


or  each  with  its  earnings  on  the  business  for  the  year  1910  so  capital- 
ized that  said  earnings  represent  11.02  per  cent  upon  the  capital. 

Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard  Co.  will  issue  se- 
curities to  cover  such  capitalization  in  the  aggregate  as  follows:  To  an 
amount  equal  to  one-half  of  the  outstanding  6  per  cent  bonds  of  the 
American  Tobacco  Co.,  that  is,  $26,441,325  at  par  in  7  per  cent  bonds; 
to  an  amount  equal  to  one-half  of  the  outstanding  4  per  cent  bonds 
of  the  American  Tobacco  Co.,  that  is,  $25,677,050  at  par  in  5  per 
cent  bonds;  to  an  amount  equal  to  one-third  of  the  outstanding  pre- 
ferred stock  of  the  American  Tobacco  Co.,  that  is,  $26,229,700  at 
par  in  7  per  cent  cumulative  voting  preferred  stock,  which,  upon 
liquidation  of  the  company,  shall  be  paid  at  par  with  accrued  unpaid 
dividends  before  any  amount  shall  be  paid  to  common  stock,  with 
balance  of  assets  distributable  ratably  to  the  common  stock,  and  the 
balance  of  said  $115,000,000,  that  is,  $36,651,925  in  common  stock. 
The  7  per  cent  bonds  and  the  5  per  cent  bonds  to  mature  at  the  time 
fixed,  respectively,  for  the  maturity  of  the  6  per  cent  bonds  and 
the  4  per  cent  bonds  of  the  American  Tobacco  Co.  now  outstanding 
and  to  be  issued  under  an  indenture  of  substantially  like  tenor  and 
terms  with  the  present  indenture  of  the  American  Tobacco  Co.  under 
which  its  6  per  cent  bonds  and  4  per  cent  bonds  were  issued.  The 
7  per  cent  bonds  to  have  priority  in  charge  over  the  5  per  cent  bonds 
in  the  same  way  that  the  6  per  cent  bonds  of  the  American  Tobacco 
Co.  have  priority  of  charge  over  the  4  per  cent  bonds  Thus  the 
capitalization  of  the  Ligget  &  Myers  Tobacco  Co.  and  P.  Lorillard 
Co.  will  be  as  follows 


7  per  cent  bonds 

5  per  cent  bonds 

7  per  cent  preferred  stock 
Common  stock 

Total 


Liggett  & 
Myers. 


515,507,837 
15,059,589 
15,383,719 
21,496,354 


67,447,499 


Lorillard. 


510,933,488 
10,617,461 
10,845,981 
i5,i55,57i 


47,552,5oi 


Total. 


$26,441,325 
25,677,050 
26,229,700 
36,651,925 

115,000,000 


All  of  these  securities  of  the  Liggett  &  Myers  Tobacco  Co.  and  the 
P.  Lorillard  Co.  to  be  turned  over  to  the  American  Tobacco  Co.  in 
payment  of  the  purchase  price  for  the  factories,  plants,  brands,  and 
businesses  and  capital  stocks  of  tobacco  manufacturing  corporations 
so  to  be  conveyed  to  Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard 
Co.,  respectively,  as  hereinbefore  set  out. 


454  Industrial  Combinations  and  Trusts 

These  securities  will  be  disposed  of  by  the  American  Tobacco  Co. 
as  follows: 

The  common  stock  will  be  offered  for  cash  at  par  to  the  holders  of 
the  common  stock  of  the  American  Tobacco  Co.  in  proportion  to  their 
holdings,  and  any  not  purchased  by  the  person  thus  entitled  thereto 
shall  be  sold  to  persons  other  than  the  individual  defendants,  to  the 
end  that  such  offer  of  common  stock  of  the  two  new  companies  to  the 
common-stock  holders  of  the  American  Tobacco  Co.  shall  not  be 
used  by  the  individual  defendants  to  increase  their  ownership  therein 
beyond  the  proportion  of  their  holdings  of  the  common  stock  of  the 
American  Tobacco  Co. 

To  each  holder  of  the  6  per  cent  bonds  of  the  American  Tobacco  Co. 
an  offer  shall  be  made  to  acquire  his  bonds  for  cancellation  and  to  give 
in  exchange  therefor,  as  to  one-half  thereof,  new  7  per  cent  bonds  of 
Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard  Co.  at  par,  and  in 
payment  for  the  other  half  thereof  cash  at  the  rate  of  $120  and  ac- 
crued interest  for  each  $100  face  value  of  the  bonds. 

To  each  holder  of  the  4  per  cent  bonds  of  the  American  Tobacco 
Co.  an  offer  shall  be  made  to  acquire  his  bonds  for  cancellation,  and 
to  give  in  exchange  therefor,  as  to  one-half  thereof,  new  5  per  cent 
bonds  of  Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard  Co.  at  par, 
and  in  payment  for  the  other  half  thereof  cash  at  the  rate  of  $96  and 
accrued  interest  for  each  $100  face  value  of  the  bonds. 

To  each  holder  of  the  preferred  stock  of  the  American  Tobacco  Co. 
an  offer  shall  be  made  to  acquire  one-third  of  his  stock  for  cancella- 
tion in  exchange  for  an  equal  amount  at  par  of  Liggett  &  Myers 
Tobacco  Co.  and  P.  Lorillard  Co. 

On  account  of  the  larger  capitalization  of  the  Liggett  &  Myers  To- 
bacco Co.,  as  compared  with  the  P.  Lorillard  Co.,  each  class  of  the 
new  securities  will  issue  in  the  proportion  of  58.65  per  cent  thereof 
of  Liggett  &  Myers  Tobacco  Co.  securities  and  41.35  per  cent  thereof 
of  P.  Lorillard  Co.  securities.  The  stocks  will  be  issued  in  shares  of 
$100,  and  coupon  bonds  in  denominations  of  $1,000,  and  registered 
bonds  in  larger  denominations,  and  in  denominations  of  $100  and 
$50,  and  in  actual  issue  fractions  will  be  eliminated. 

The  common  stocks  of  the  two  companies  aforesaid  are  to  be  sold 
as  above  set  out  prior  to  March  1,  191 2,  writh  three  years  to  be  al- 
lowed for  the  retirement  of  the  bonds  and  preferred  stock  of  the 
American  Tobacco  Co.,  as  above  set  out.  Pending  such,  the  said  7 
per  cent  bonds,  5  per  cent  bonds,  and  7  per  cent  preferred  stocks  of 
the  Liggett  &  Myers  Tobacco  Co.  and  the  P.  Lorillard  Co.,  together 


Methods  of  Dissolution  455 

with  an  amount  in  cash,  or  in  securities  owned  by  the  American  To- 
bacco Co.,  at  their  book  value,  or  partly  in  cash  and  partly  in  such 
securities,  equal  to  the  amounts  required  if  all  such  sales  and  ex- 
changes are  made,  will  be  deposited  with  the  Guaranty  Trust  Co.  of 
New  York,  the  trustee  in  the  indenture  under  which  the  6  per  cent 
bonds  and  the  4  per  cent  bonds  of  the  American  Tobacco  Co.  are 
issued,  as  the  agency  to  effect  the  purchase  and  exchange.  Such 
deposit  will  be  made,  not  to  secure  nor  create  a  trust  fund  for  the 
bonds,  but  for  the  purpose  of  sequestrating  and  taking  from  the  con- 
trol of  the  American  Tobacco  Co.  the  securities  and  cash  so  deposited. 
During  the  time  of  such  deposit  the  securities  shall  be  in  the  name  of, 
as  well  as  in  the  custody  of,  said  trust  company,  with  any  voting 
rights  attaching  thereto,  but  the  American  Tobacco  Co.  shall  receive 
from  the  trust  company  all  dividends  and  interest  collected  by  it  on 
account  of  such  securities;  and  the  American  Tobacco  Co.  shall  have 
the  right  at  any  time  and  from  time  to  time  to  sell,  at  such  price  as 
it  may  determine,  and  direct  the  delivery  of  any  of  such  securities 
(except  the  securities  of  Liggett  &  Myers  Tobacco  Co.  and  P.  Loril- 
lard  Co.),  the  consideration  therefor  to  go  into  the  hands  of  said 
trust  company;  or  to  withdraw  any  of  such  securities  (except  the 
securities  of  Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard  Co.)  for 
the  purpose  of  distribution  among  its  common-stock  holders,  if  its 
surplus  at  the  time  permits;  or  to  substitute  other  securities  of  like 
book  value  for  the  securities  so  deposited  (except  as  to  the  securities 
of  Liggett  &  Myers  Tobacco  Co.  and  P.  Lorillard  Co.) ;  or  to  alter  the 
relative  proportion  of  cash  and  securities,  it  being  the  intent  of  this 
provision  that  there  shall  be  sequestrated  from  the  control  of  the 
American  Tobacco  Co.  all  the  securities  of  the  Liggett  &  Myers  To- 
bacco Co.  and  P.  Lorillard  Co.,  and  an  additional  amount  of  cash  or 
other  securities  equal,  upon  the  purchase  basis  aforesaid,  to  the  value 
of  the  4  per  cent  bonds  and  the  6  per  cent  bonds  of  the  American  To- 
bacco Co.  at  the  time  outstanding.  At  the  end  of  the  three  years,  if 
there  are  any  of  such  securities  of  the  Liggett  &  Myers  Tobacco  Co.  or 
P.  Lorillard  Co.  in  the  hands  of  such  trust  company  undisposed  of 
by  such  exchange  as  aforesaid,  then  the  American  Tobacco  Co.  shall 
apply  to  this  court  for  an  order  as  to  the  disposition  thereof.  Noth- 
ing contained  in  this  provision,  and  nothing  done  under  this  provision, 
shall  be  construed  as  providing  for  the  creation  of,  or  as  creating, 
any  lien  or  security  on  anything  deposited  with  the  trust  company 
in  favor  of  the  6  per  cent  bonds  or  the  4  per  cent  bonds  of  the  Amer- 
ican Tobacco  Co.,  outstanding  or  otherwise. 


456  Industrial  Combinations  and  Trusts 


G. 

voting  rights  to  preferred  stock. 

By  proper  amendment  of  the  certificate  of  incorporation  of  the 
American  Tobacco  Co.  the  preferred  stock  will  be  given  full  voting 
rights. 

H. 

certain  incidental  provisions. 

(1)  P.  Lorillard  Co.  is  a  New  Jersey  company  with  $3,000,000  of 
common  stock,  all  of  which  is  owned  by  the  American  Tobacco  Co., 
and  $2,000,000  of  8  per  cent  preferred  stock.  Of  this  preferred  stock 
the  American  Tobacco  Co.  holds  $1,596,100  at  par  and  there  is  held 
by  others  $403,900  at  par.  Under  the  laws  of  New  Jersey  the  present 
P.  Lorillard  Co.  may  be  dissolved  by  the  holders  of  two-thirds  of  the 
outstanding  stock,  and  upon  such  dissolution  the  preferred  stock  is 
entitled  to  be  paid  at  par,  the  balance  of  the  assets  going  to  the  com- 
mon stock.  In  view  of  the  fact,  however,  that  the  preferred  stock  of 
the  present  P.  Lorillard  Co.  is  an  8  per  cent  preferred  stock  with 
abundant  assets  and  earnings  to  make  the  principal  and  income 
secure,  it  is  deemed  fair  to  the  holders  of  this  outstanding  $403,900  of 
preferred  stock  that  they  be  given  an  opportunity  to  take,  at  their 
option,  either  cash  at  par,  which  they  are  legally  entitled  to,  or  the 
7  per  cent  preferred  stock  of  the  proposed  new  P.  Lorillard  Co.  As 
the  preferred  stock  of  the  new  P.  Lorillard  Co.  is  to  be  a  7  per  cent 
preferred  stock,  the  holders  of  said  $403,900  of  said  present  preferred 
stock  will  be  offered  stock  of  the  new  company  at  the  rate  of  $114.25 
for  each  share.  It  is  therefore  proposed  that  the  new  P.  Lorillard 
Co.  provide  for  an  additional  amount  of  preferred  stock  sufficient  to 
take  care  of  $403,900  preferred  stock  on  that  basis,  to  wit,  $114.25  in 
new  7  per  cent  preferred  stock  for  each  $100  of  said  stock,  amounting 
to  $461,600  at  par  of  preferred  stock  in  addition  to  that  set  out  here- 
inbefore. In  view  of  the  fact  that  in  the  statements  hereinbefore 
made  as  to  earnings  of  the  P.  Lorillard  Co.  there  is  included  only  such 
part  of  the  earnings  of  the  present  P.  Lorillard  Co.  as  accrued  to  the 
proportion  of  its  stock  held  by  the  American  Tobacco  Co.,  this  in- 
crease of  preferred  stock  would  increase  proportionately  the  profits  of 
the  P.  Lorillard  Co.,  and  does  not  derange  any  of  the  figures  herein- 
before given  or  given  in  any  of  the  exhibits  hereto  and  hereinafter 
referred  to. 


Methods  of  Dissolution  457 

(2)  American  Snuff  Co.  manufactures  and  sells  a  brand  of  snuff 
called  "Garrett,"  which  has  a  large  sale  in  the  southern  and  south- 
western sections  of  the  country.  Originally  this  brand  was  manu- 
factured at  Yorklyn,  Del.,  and  in  part  packed  in  Philadelphia. 
Several  years  ago  American  Snuff  Co.  determined,  on  account  of 
freight-rate  conditions,  to  manufacture  this  brand  at  Clarksville, 
Tenn.,  and  to  pack  it  at  Memphis,  Tenn.,  and  that  the  factories 
at  Yorklyn,  Del.,  should  be  given  up  to  the  manufacture  of  other 
brands.  It  has  yet,  though,  been  unable  to  produce  in  Clarksville, 
Tenn.,  goods  similar  to  the  goods  heretofore  and  now  made  by  it  at 
Yorklyn,  Del.,  although  the  experiment  is  still  in  progress,  and  with 
hope  of  success.  Under  the  plan  hereinbefore  outlined  the  brand 
"  Garrett"  snuff  is  allotted  to  American  Snuff  Co.,  and  the  factories 
other  than  one  factory  at  Yorklyn,  Del.,  are  allotted  to  George  W. 
Helme  Co. ;  your  petitioners  pray  that  in  the  approval  and  adoption 
by  this  court  of  this  plan,  American  Snuff  Co.  and  George  W. 
Helme  Co.  be  permitted  to  manufacture  brands  the  one  for  the 
other  for  a  period  not  exceeding  one  year  from  March  1,  191 2, 
each  company  paying  to  the  other  as  consideration  for  such  manu- 
facture the  cost  thereof  plus  5  per  cent;  the  necessity  of  paying  5 
per  cent  above  cost  is  sufficient  inducement  to  each  company  to 
manufacture  its  own  goods  as  soon  as  American  Snuff  Co.  is  able  to 
manufacture  "Garrett"  snuff  of  the  requisite  character  and  kind 
in  its  Clarksville  factory,  thus  leaving  the  Yorklyn  factories,  other 
than  No.  5,  for  the  manufacture  by  the  George  W.  Helme  Co.  of 
its  own  brands. 

This  court  having  heard  the  parties  as  directed  by  the  Supreme 
Court  of  the  United  States,  it  is  further  ascertained  and  determined, 
and  ordered,  adjudged,  and  decreed  that  said  plan  hereinbefore 
set  forth  is  a  plan  or  method  which,  taken  with  the  injunctive  pro- 
visions hereinafter  set  forth,  will  dissolve  the  combination  heretofore 
adjudged  to  be  illegal  in  this  cause,  and  will  re-create  out  of  the 
elements  now  composing  it  a  new  condition  which  will  be  honestly 
in  harmony  with,  and  not  repugnant  to,  the  law,  and  without  un- 
necessary injury  to  the  public  or  the  rights  of  private  property. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  said  plan  as 
hereinabove  set  forth  be,  and  it  is  hereby,  approved  by  this  court, 
and  the  defendants  herein  are,  respectively,  directed  to  proceed 
forthwith  to  carry  the  same  into  effect. 

The  necessities  of  the  situation,  in  the  judgment  of  this  court, 
requiring  the  extension  of  the  period  for  carrying  into  execution 


458  Industrial  Combinations  and  Trusts 

said  plan  to  a  further  time  not  to  exceed  60  days  from  Decem- 
ber 30,   IQII. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  defendants 
be  allowed  until  February  28,  1912,  to  carry  said  plan  into  execu- 
tion. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  defendants, 
their  officers,  directors,  servants,  agents,  and  employees  be,  and 
they  are  hereby,  severally  enjoined  and  restrained  as  follows: 

From  continuing  or  carrying  into  further  effect  the  combination 
adjudged  illegal  in  this  cause,  and  from  entering  into  or  forming 
any  like  combination  or  conspiracy,  the  effect  of  which  is  or  will  be 
to  restrain  commerce  in  tobacco  or  its  products  or  in  articles  used 
in  connection  with  the  manufacture  and  trade  in  tobacco  and  its 
products  among  the  States  or  in  the  Territories  or  with  foreign  na- 
tions, or  to  prolong  the  unlawful  monopoly  of  such  commerce  ob- 
tained and  possessed  by  the  defendants  as  adjudged  herein  in  viola- 
tion of  the  act  of  Congress  approved  July  2,  1890,  either: 

1.  By  causing  the  conveyance  of  the  factories,  plants,  brands,  or 
business  of  any  of  the  14  corporations  among  which  the  properties 
and  businesses  now  in  the  combination  are  to  be  distributed,  to 
wit,  The  American  Tobacco  Co.,  Liggett  &  Myers  Tobacco  Co.,  P. 
Lorillard  Co.,  American  Snuff  Co.,  George  W.  Helme  Co.,  Weyman- 
Bruton  Co.,  R.  J.  Reynolds  Tobacco  Co.,  British- American  To- 
bacco Co.  (Ltd.),  Porto  Rican- American  Tobacco  Co.,  MacAn- 
drews  &  Forbes  Co.,  J.  S.  Young  Co.,  The  Conley  Foil  Co.,  The 
Johnston  Tin  Foil  &  Metal  Co.,  and  United  Cigar  Stores  Co.,  to 
any  other  of  said  corporations,  by  placing  the  stocks  of  any  one  or 
more  of  said  corporations  in  the  hands  of  voting  trustees  or  control- 
ling the  voting  power  of  such  stocks  by  any  similar  device;  or 

2.  By  making  any  express  or  implied  agreement  or  arrangement 
together  or  one  with  another  like  those  adjudged  illegal  in  this 
cause  relative  to  the  control  or  management  of  any  of  said  14  cor- 
porations, or  the  price  or  terms  of  purchase  or  of  sale  of  tobacco 
or  any  of  its  products  or  the  supplies  or  other  products  dealt  with  in 
connection  with  the  tobacco  business,  or  relative  to  the  purchase, 
sale,  transportation,  or  manufacture  of  tobacco  or  its  products  or 
supplies  or  other  products  dealt  with  as  aforesaid  by  any  of  the  par- 
ties hereto  which  will  have  a  like  effect  in  restraint  of  commerce 
among  the  States,  in  the  Territories,  and  with  foreign  nations  to 
that  of  the  combination,  the  operation  of  which  is  enjoined  in  this 
cause,  or  by  making  any  agreement  or  arrangement  of  any  kind 


Methods  of  Dissolution  459 

with  any  other  of  such  corporations  under  which  trade  or  business 
is  apportioned  between  such  corporations  in  respect  either  to  cus- 
tomers or  localities. 

3.  By  any  of  said  14  corporations  retaining  or  employing  the 
same  clerical  organization,  or  keeping  the  same  office  or  offices,  as 
any  other  of  said  corporations. 

4.  By  any  of  said  14  corporations  retaining  or  holding  capital 
stock  in  any  other  corporation  any  part  of  whose  stock  is  also 
retained  and  held  by  any  other  of  said  corporations:  Provided,  how- 
ever, That  this  prohibition  shall  not  apply  to  the  holding  by  the 
Porto  Rican-American  Tobacco  Co.  and  American  Cigar  Co.  of 
stock  in  Porto  Rican  Leaf  Tobacco  Co.,  nor  shall  it  apply  to  the 
holding  of  stock  of  the  National  Snuff  Co.  (Ltd.),  by  Weyman- 
Bruton  Co.  and  British- American  Tobacco  Co.   (Ltd.). 

5.  By  any  of  said  14  corporations  doing  business  directly  or  in- 
directly under  any  other  than  its  own  corporate  name  or  the  name 
of  a  subsidiary  corporation  controlled  by  it:  Provided,  however, 
That  in  case  of  a  subsidiary  corporation  the  controlling  corporation 
shall  cause  the  products  of  such  subsidiary  corporation  which  are 
sold  in  the  United  States  and  bear  the  name  of  the  manufacturer, 
to  bear  also  a  statement  indicating  the  fact  of  such  control. 

6.  By  any  of  said  14  corporations  refusing  to  sell  to  any  jobber 
any  brand  of  any  tobacco  product  manufactured  by  it  except  upon 
condition  that  such  jobber  shall  purchase  from  the  vendor  some 
other  brand  or  product  also  manufactured  and  sold  by  it :  Provided, 
however,  That  this  prohibition  shall  not  be  construed  to  apply  to 
what  are  known  as  "combination  orders"  under  which  some  brand 
or  product  may  be  offered  to  a  jobber  or  dealer  at  a  reduced  price 
on  condition  that  he  purchase  a  given  quantity  of  some  other  brand 
or  product. 

It  is  further  ordered,  adjudged,  and  decreed  that  during  a  period 
of  five  years  from  the  date  hereof,  each  of  said  14  corporations 
hereinbefore  named,  its  officers,  directors,  agents,  servants,  and 
employees,  are  hereby  enjoined  and  restrained,  as  follows: 

1.  None  of  the  said  14  corporations  shall  have  any  officer  or 
director  who  is  also  an  officer  or  director  in  any  other  of  said  corpora- 
tions. 

2.  None  of  said  14  corporations  shall  retain  or  employ  the  same 
agent  or  agents  for  the  purchase  in  the  United  States  of  tobacco 
leaf  or  other  raw  material,  or  for  the  sale  in  the  United  States  of 
tobacco  or  other  products,  as  that  of  any  other  of  said  corporations. 


460  Industrial  Combinations  and  Trusts 

3.  None  of  said  14  corporations  shall  directly  or  indirectly  ac- 
quire any  stock  in  any  other  of  said  corporations,  or  purchase  or 
acquire  any  of  the  factories,  plants,  brands,  or  business  of  any  other 
of  said  corporations,  or  make  loans  or  otherwise  extend  financial 
aid  to  any  other  of  said  corporations. 

The  provisions  of  this  decree  shall  apply  only  to  trade  and  com- 
merce in  or  between  the  several  States  and  Territories  and  the 
District  of  Columbia,  and  trade  and  commerce  between  the  United 
States  and  foreign  nations. 

It  is  further  ordered,  adjudged,  and  decreed  that  British- 
American  Tobacco  Co.  (Ltd.)  and  the  Imperial  Tobacco  Co.  (of 
Great  Britain  and  Ireland,  Ltd.)  shall  not  act  as  agent  for  each 
other,  nor  employ  a  common  agent,  for  the  purchase  of  leaf  tobacco 
in  the  United  States,  and  neither  of  said  two  companies  shall  unite 
with  any  of  the  said  14  corporations  among  which  the  properties 
and  businesses  now  in  the  combination  are  to  be  distributed,  in  the 
employment  of  a  common  agent  for  the  purchase  of  tobacco  leaf 
in  the  United  States. 

It  is  further  ordered,  adjudged,  and  decreed  that  each  of  the  29 
individual  defendants  in  this  suit  be  enjoined  and  restrained  from 
at  any  time  within  three  years  from  the  date  of  this  decree,  acquir- 
ing, owning,  or  holding,  directly  or  indirectly,  any  stock,  or  any 
legal  or  equitable  interest  in  any  stock  in  any  one  of  said  14  corpora- 
tions, except  British- American  Tobacco  Co.  (Ltd.),  in  excess  of  the 
amount  to  which  he  will  be  entitled  under  the  provisions  of  the 
plan  when  the  same  shall  have  been  carried  out  as  proposed  as  the 
present  owner  of  the  amount  of  stocks  in  said  several  companies 
shown  by  the  affidavits  of  said  several  defendants  filed  herein  on  the 
16th  day  of  November,  1911:  Provided,  however,  That  any  of  said 
defendants  may,  notwithstanding  this  prohibition,  acquire  from 
any  other  or  others  of  said  defendants,  or  in  case  of  death  from 
their  estates,  any  of  the  stock  held  by  such  other  defendant  or 
defendants  in  any  of  said  corporations. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  new  com- 
panies whose  organization  is  provided  for  in  the  plan  hereinabove 
set  forth,  to  wit:  Liggett  &  Myers  Tobacco  Co.,  P.  Lorillard  Co., 
George  W.  Helme  Co.,  Weyman-Bruton  Co.,  and  J.  S.  Young  Co., 
shall,  after  their  formation  and  by  appropriate  proceeding,  be  made 
parties  defendant  to  this  cause  and  subject  to  the  provisions  of 
this  decree  and  bound  by  the  injunctions  herein  granted. 

It  is  further  ordered,  adjudged,  and  decreed  that  any  party  hereto 


Methods  of  Dissolution  461 

may  make  application  to  the  court  for  such  orders  and  directions 
as  may  be  necessary  or  proper  in  relation  to  the  carrying  out  of 
said  plan,  and  the  provisions  of  this  decree. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  costs  of  this 
action  shall  be  paid  by  the  defendants  other  than  R.  P.  Richardson, 
jr.,  &  Co.  (Inc.),  as  to  whom  the  suit  has  heretofore  been  dismissed, 
and  the  payment  by  the  defendant,  the  American  Tobacco  Co.,  of 
the  reasonable  costs  and  counsel  fees  of  the  committees  organized 
for  the  protection  of  the  6  per  cent  bonds,  4  per  cent  bonds  and  pre- 
ferred stock  of  the  American  Tobacco  Co.  is  hereby  approved. 

It  is  further  ordered,  adjudged,  and  decreed  that  the  defendants, 
the  American  Tobacco  Co.,  MacAndrews  &  Forbes  Co.,  American 
Snuff  Co.,  and  each  of  them  and  their  and  each  of  their  officers, 
directors,  servants,  agents,  and  employees,  be  severally  enjoined 
and  restrained,  as  in  said  plan  set  forth,  from  voting  stocks,  exer- 
cising influence  or  control  over  other  companies  or  gaining  posses- 
sion of  other  companies  through  the  use  of  securities  temporarily 
held  by  them,  respectively,  under  said  plan  in  each  and  every  case 
in  which  it  is  provided  in  and  by  the  said  plan  that  any  of  said 
three  last-named  defendants  shall  be  so  enjoined. 

It  is  further  ordered,  adjudged,  and  decreed  that  such  books  and 
papers  of  the  defendants,  the  American  Tobacco  Co.  and  S.  Anargy- 
ros,  or  either  of  them,  as  relate  to  the  suit  of  the  Ludington  Ciga- 
rette Machine  Co.  v.  S.  Anargyros  and  the  American  Tobacco  Co., 
or  the  subject  matter  thereof  or  any  part  thereof,  be  preserved  by 
the  said  defendants,  respectively,  until  after  the  accounting,  if  any 
shall  take  place  in  said  suit,  and  said  suit  be  finally  determined  and 
ended. 

It  is  further  ordered,  adjudged,  and  decreed  that  jurisdiction  of 
this  cause  is  retained  by  this  court  for  the  purpose  of  making  such 
other  and  further  orders  and  decrees,  if  any,  as  may  become  neces- 
sary for  carrying  out  the  mandate  of  the  Supreme  Court. 
November  16,  191 1. 

E.  Henry  Lacombe, 

Circuit  Judge. 
Alfred  C.  Coxe, 

Circuit  Judge. 
H.  G.  Ward, 

Circuit  Judge. 
Walter  C.  Noyes, 

Circuit  Judge. 


462  Industrial  Combinations  and  Trusts 

Exhibit  2 
the  dissolution  of  the  standard  oil  company  l 

standard  oil  company  (of  new  jersey). 

26  broadway, 

New  York,  July  28,  191 1. 
To  the  Stockholders  of  the 

Standard  Oil  Company  (of  New  Jersey) : 

Obedience  to  the  final  Decree  in  the  case  of  the  United  States 
against  the  Standard  Oil  Company  (of  New  Jersey),  and  others, 
requires  this  Company  to  distribute,  or  cause  to  be  distributed,  ratably, 
to  its  stockholders  the  shares  of  stock  of  the  following  corporations, 
which  it  owns  directly  or  through  its  ownership  of  stock  of  the  National 
Transit  Company,*  to  wit:  Anglo-American  Oil  Company,  Limited; 
The  Atlantic  Refining  Company;  Borne-Scrymser  Company; 
The  Buckeye  Pipe  Line  Company;  Chesebrough  Manufacturing 
Company,  Consolidated;  Colonial  Oil  Company;  Continental  Oil 
Company;  The  Crescent  Pipe  Line  Company;  Cumberland  Pipe 
Line  Company,  Incorporated;  The  Eureka  Pipe  Line  Company; 
Galena-Signal  Oil  Company;  Indiana  Pipe  Line  Company;  National 
Transit  Company;  New  York  Transit  Company;  Northern  Pipe 
Line  Company;  The  Ohio  Oil  Company;  The  Prairie  Oil  and  Gas 
Company;  The  Solar  Refining  Company;  Southern  Pipe  Line  Com- 
pany; South  Penn  Oil  Company;  South  West  Pennsylvania  Pipe 
Lines;  Standard  Oil  Company  (California);  Standard  Oil  Company 
(Indiana);  The  Standard  Oil  Company  (Kansas);  Standard  Oil 
Company  (Kentucky) ;  Standard  Oil  Company  (Nebraska) ;  Stan- 
dard Oil  Company  of  New  York;  The  Standard  Oil  Company 
(Ohio);  Swan  &  Finch  Company;  Union  Tank  Line  Company; 
Vacuum  Oil  Company;  Washington  Oil  Company;  Waters-Pierce 
Oil  Company. 

Such  distribution  will  be  made  to  the  stockholders  of  the  Standard 
Oil  Company  (of  New  Jersey)  of  record  on  the  1st  day  of  September, 
191 1 ;  and,  for  that  purpose,  the  transfer  books  of  the  Company  will 
be  closed  on  the  31st  day  of  August,  191 1,  at  3  o'clock  P.  M.,  and 

1  Letter  of  the  Standard  Oil  Company  to  its  stockholders.  The  Standard  Oil 
Company  had  no  dissolution  plan  such  as  was  prepared  by  the  Tobacco  Com- 
pany.   It  merely  followed  the  decree  of  the  Supreme  Court. — Ed. 

2  Italics  are  the  editor's. 


Methods  of  Dissolution  463 

kept  closed  until  the  date  when  said  stocks  are  ready  for  distri- 
bution, which  it  is  expected  will  be  about  December  1,  191 1. 

Notice  of  the  date  when  said  stocks  are  to  be  distributed  and  of 
the  re-opening  of  the  books  will  be  duly  given. 

Yours  very  truly, 

H.  C.  Folger,  Jr., 
Secretary. 
Exhibit  3 

the  dissolution  of  the  powder  trust  1 

It  is  thereupon,  on  this  13th  day  of  June,  A.  D.  1912,  ordered, 
adjudged  and  decreed  as  follows,  to  wit: 

2.  That  the  remaining  twenty-seven  defendants,  namely: 
Hazard  Powder  Company,  Laflin  &  Rand  Powder  Company, 
Eastern  Dynamite  Company,  Fairmont  Powder  Company,  Judson 
Dynamite  &  Powder  Company,  Delaware  Securities  Company, 
Delaware  Investment  Company,  California  Investment  Company, 
E.  I.  duPont  de  Nemours  &  Company  of  Pennsylvania,  duPont 
International  Powder  Company,  E.  I.  duPont  de  Nemours  Powder 
Company,  E.  I.  duPont  de  Nemours  &  Company,  Thomas  Coleman 
duPont,  Pierre  S.  duPont,  Alexis  I.  duPont,  Alfred  I.  duPont, 
Eugene  duPont,  Eugene  E.  duPont,  Henry  F.  duPont,  Irenee 
duPont,  Francis  I.  duPont,  Victor  duPont,  Jr.,  Jonathan  A.  Haskell, 
Arthur  J.  Moxham,  Hamilton  M.  Barksdale,  Edmund  G.  Buckner 
and  Frank  L.  Connable,  are  maintaining  a  combination  in  restraint 
of  interstate  commerce  in  powder  and  other  explosives  in  violation 
of  section  1,  of  an  Act  entitled  "An  Act  to  Protect  Trade  and 
Commerce  against  Unlawful  Restraints  and  Monopolies,"  approved 
July  2,  1890,  and  have  attempted  to  monopolize  and  have  monopo- 
lized a  part  of  such  commerce  in  violation  of  section  2  of  said  Act. 

Wherefore,  It  is  further  ordered,  adjudged  and  decreed  that  the 
twenty-seven  (27)  defendants  above  mentioned,  and  each  of  them 
be  enjoined  from  continuing  said  combination  and  monopoly, 
and  that  said  combination  and  monopoly  be  dissolved. 

3.  That  the  petitioner  having  availed  itself  of  the  permission 
granted  in  said  interlocutory  decree  and  having  presented  a  certain 
plan  for  the  dissolution  of  said  combination  and  the  dissolution  of 

1  The  United  States  of  America  v.  E.  I.  duPont  de  Nemours  &°  Company  and 
Others.  In  the  District  Court  of  the  United  States,  for  the  District  of  Dela- 
ware in  Equity  No.  280,  Opinion  of  Court  and  Final  Decree,  pp.  2-13. 


464  Industrial  Combinations  and  Trusts 

said  monopoly,  so  far  as  the  present  situation  of  the  parties  and 
the  properties  involved  will  permit,  to  which  plan  the  said  twenty- 
seven  (27)  defendants  do  not  object,  which  said  plan  is  as  follows: 

First:  Dissolve  the  defendant  corporation  E.  I.  duPont  de 
Nemours  &  Company  (1902,  Delaware  corporation)  and  distribute 
its  property  among  its  stockholders. 

Second:  Dissolve  the  defendant  corporation  Hazard  Powder 
Company  and  distribute  its  property  among  its  stockholders. 

Third:  Dissolve  the  defendant  corporation  Delaware  Securities 
Company  and  distribute  its  property  among  its  stockholders. 

Fourth:  Dissolve  the  defendant  corporation  Delaware  Invest- 
ment Company  and  distribute  its  property  among  its  stockholders. 

Fifth:  Dissolve  the  defendant  corporation  Eastern  Dynamite 
Company  and  distribute  its  property  among  its  stockholders. 

Sixth:  Dissolve  the  defendant  corporations  California  Invest- 
ment Company  and  Judson  Dynamite  and  Powder  Company  and 
distribute  their  property  among  their  stockholders. 

Seventh:  Organize  two  corporations  in  addition  to  E.  I.  duPont 
de  Nemours  Powder  Company  (1903,  New  Jersey  Corporation) 
which  shall  be  capitalized  as  hereinafter  provided,  or  reorganize 
the  Laflin  and  Rand  Powder  Company  and  the  Eastern  Dynamite 
Company,  or  either  of  them,  to  be  used  instead  of  one  or  both  of 
said  two  corporations,  and  in  case  the  said  Eastern  Dynamite 
Company  is  so  selected,  then  it  need  not  be  dissolved  as  herein- 
before provided.  In  case  the  Laflin  and  Rand  Powder  Company 
is  not  used  under  this  paragraph  dissolve  said  company  and  dis- 
tribute its  property  among  its  stockholders. 

To  the  first  of  said  corporations  transfer  the  following  plants: 

For  the  Manufacture  of  Dynamite: 
Plant  at  Kenville,  New  Jersey, 
Plant  at  Marquette,  Michigan, 
Plant  at  Pinole,  California. 

For  the  Manufacture  of  Black  Blasting  Powder: 
Plant  at  Rosendale,  New  York, 
Two  (2)  plants  at  Ringtown,  Pennsylvania, 
Plant  at  Youngstown,  Ohio, 
Plant  at  Pleasant  Prairie,  Wisconsin, 
Plant  at  Turck,  Kansas, 
Plant  at  Santa  Cruz,  California. 


Methods  of  Dissolution  465 

For  the  Manufacture  of  Black  Sporting  Powder: 

Plant  at  Hazardville,  Connecticut, 
Plant  at  Schaghticoke,  New  York. 

To  the  second  of  said  corporations  transfer  the  following  plants: 
For  the  Manufacture  of  Dynamite: 

Plant  at  Hopatcong,  New  Jersey, 
Plant  at  Senter,  Michigan, 
Plant  at  Atlas,  Missouri, 
Plant  at  Vigorit,  California. 

For  the  Manufacture  of  Black  Blasting  Powder: 

Plant  at  Riker,  Pennsylvania, 
Plant  at  Shenandoah,  Pennsylvania, 
Plant  at  Ooltewah,  Tennessee, 
Plant  at  Belleville,  Illinois, 
Plant  at  Pittsburg,  Kansas. 

And  permit  the  said  defendant  E.  I.  duPont  de  Nemours  Powder. 
Company  to  retain  the  following  plants: 

For  the  Manufacture  of  Dynamite: 

Plant  at  Ashburn,  Missouri, 
Plant  at  Barksdale,  Wisconsin, 
Plant  at  duPont,  Washington, 
Plant  at  Emporium,  Pennsylvania, 
Plant  at  Hartford  City,  Indiana, 
Plant  at  Louviers,  Colorado, 
Plant  at  Gibbstown,  New  Jersey, 
Plant  at  Lewisburg,  Alabama. 

For  the  Manufacture  of  Black  Blasting  Powder: 

Plant  at  Augusta,  Colorado, 

Plant  at  Connable,  Alabama, 

Plant  at  Oliphant  Furnace,  Pennsylvania, 

Plant  at  Mooar,  Iowa, 

Plant  at  Nemours,  West  Virginia, 

Plant  at  Patterson,  Oklahoma, 

Plant  at  Wilpen,  Minnesota. 


466  Industrial  Combinations  and  Trusts 

For  the  Manufacture  of  Black  Sporting  Powder: 
Plant  at  Brandywine,  Delaware, 
Plant  at  Wayne,  New  Jersey. 

For  the  Manufacture  of  Smokeless  Sporting  Powder: 
Plant  at  Carney's  Point,  New  Jersey, 
Plant  at  Haskell,  New  Jersey. 

For  the  Manufacture  of  Government  Smokeless  Powder: 
Plant  at  Carney's  Point,  New  Jersey, 
Plant  at  Haskell,  New  Jersey. 

Eighth:  Transfer  to  or  furnish  the  first  of  said  two  corporations 
with  a  plant  for  the  manufacture  of  smokeless  sporting  powder  and 
the  brands  now  or  heretofore  owned  by  the  Laflin  and  Rand  Powder 
Company.  Such  plant  to  be  located  at  Kenville,  New  Jersey,  or  some 
other  suitable  Eastern  point,  and  to  be  of  a  capacity  sufficient  to 
manufacture  950,000  pounds  per  annum  of  smokeless  sporting  pow- 
der of  the  brands  to  be  assigned  to  the  first  of  said  corporations. 

Ninth:  Furnish  said  two  corporations  respectively  with  sufficient 
'working  capital  and  the  necessary  cash  and  facilities  to  enable  them 
to  efficiently  carry  on  the  business  which  will  attend  the  properties 
so  to  be  transferred  to  them. 

Tenth:  Transfer  said  properties  to  said  two  corporations  re- 
spectively upon  a  valuation  thereof  based  on  the  last  inventory  of 
said  properties,  to  include  a  fair  valuation  for  brands  and  good  will, 
and  issue  to  said  E.  I.  duPont  de  Nemours  Powder  Company  in 
payment  therefore  l  securities  of  said  two  corporations  respectively 
at  par  value  as  follows:  Fifty  per  cent.  (50%)  of  said  purchase  price 
in  bonds  not  secured  by  mortgage  wThich  shall  bear  interest  at  the 
rate  of  six  per  cent.  (6%)  per  annum,  payable  if  earned  by  the  com- 
pany during  said  year,  or  to  the  extent  thereof  earned  but  not  other- 
wise; nor  cumulative;  payable  not  less  than  ten  years  from  date;  the 
form  of  said  bonds  to  be  approved  by  the  Attorney-General  or  the 
Court,  which  bonds  shall  be  subject  to  call  at  one  hundred  and 
two  (102) ;  and  the  other  fifty  per  cent.  (50%)  of  said  purchase  price 
in  the  stock  of  said  two  corporations  respectively,  which  for  the  time 
being  shall  be  their  entire  stock  issues.  Upon  the  receipt  of  said 
stock  and  bonds  by  E.  I.  duPont  de  Nemours  Powder  Company, 
distribute  the  said  stock  and  one-half  of  said  bonds  or  the  proceeds 
1  Thus  in  original. — Ed. 


Methods  of  Dissolution  467 

of  the  sale  of  said  bonds  among  the  stockholders  of  E.  I.  duPont  de 
Nemours  Powder  Company.  In  the  organization  or  reorganization 
of  said  two  corporations  to  which  said  properties  are  to  be  trans- 
ferred, provide  two  issues  of  stock  in  said  two  corporations  re- 
spectively, one  of  which  shall  have  voting  power  and  the  other  of 
which  shall  have  no  voting  power.  So  distribute  said  stocks  among 
the  stockholders  of  E.  I.  duPont  de  Nemours  Powder  Company  that 
any  amounts  thereof  which  upon  said  distribution  shall  go  to  any 
one  of  the  twenty-seven  defendants  hereinbefore  mentioned  shall 
consist  of  one-half  of  said  stock  with  voting  power  and  one-half  of 
said  stock  without  voting  power,  and  provide  that  upon  the  transfer 
through  death  or  by  will  from  any  one  of  said  twenty-seven  de- 
fendants of  any  stock  which  has  no  voting  power,  to  some  person  or 
persons  other  than  one  of  said  twenty-seven  defendants  herein,  or 
upon  the  sale  by  any  one  of  said  twenty-seven  defendants  of  any 
stock  which  has  no  voting  power,  to  some  person  or  persons  other 
than  one  of  said  twenty-seven  defendants  herein,  or  their  respective 
wives  or  children,  said  stock  so  sold  or  transferred  may  be  exchanged 
for  stock  with  voting  power. 

Eleventh:  Transfer  to  said  two  corporations,  respectively,  so  far 
as  practicable,  a  fair  proportion  of  the  business  in  explosives  now  con- 
trolled by  E.  I.  duPont  de  Nemours  Powder  Company  under  time 
contract. 

Twelfth:  During  a  period  of  at  least  five  years  furnish  each  of  said 
two  corporations  respectively,  under  such  arrangements  as  may  be 
reasonable,  such  information  from  the  records  of  the  Trade  Bureau 
maintained  by  E.  I.  duPont  de  Nemours  Powder  Company  as  may 
be  desired. 

Thirteenth:  During  a  period  of  at  least  five  years  furnish  to  each  of 
said  two  corporations  such  facilities,  information  and  use  of  organiza- 
tion, as  E.  I.  duPont  de  Nemours  Powder  Company  may  operate  or 
possess  in  reference  to  purchase  of  materials,  experimentation,  de- 
velopment of  the  art  and  scientific  research,  as  said  two  corporations 
may  desire  from  time  to  time,  in  the  interests  of  their  business,  and 
upon  some  reasonable  terms  as  to  the  cost  thereof  to  said  two  cor- 
porations. 

And  said  plan  having  been  duly  considered  by  the  Court,  it  is 
ordered,  adjudged  and  decreed  that  the  said  defendants  are  respec- 
tively directed  to  proceed  forthwith  to  carry  said  plan  into  effect,  and 
it  is  further 

Ordered,  adjudged  and  decreed,  that  if  said  defendants  shall  not 


468  Industrial  Combinations  and  Trusts 

have  carried  said  plan  into  operation  and  effected  the  same  on  or  be- 
fore the  fifteenth  day  of  December,  191 2,  then  and  in  that  event  an 
injunction  shall  issue  out  of  this  Court  restraining  the  said  defendants 
in  paragraph  two  of  this  decree  mentioned  and  each  of  them,  and 
their  agents  and  servants  from  thereafter  in  any  manner  whatsoever 
placing  the  products  of  any  of  the  factories  owned  by  said  defend- 
ants or  said  combination  into  the  channels  of  interstate  commerce, 
or  such  other  relief  shall  be  granted  by  the  appointment  of  a  receiver 
or  otherwise  as  this  Court  may  determine. 

4.  That  should  the  defendants  find  it  impossible  to  perfect  the 
details  of  said  plan  on  or  before  the  said  fifteenth  day  of  December, 
191 2,  they  may  have  leave  to  apply  to  the  Court  for  further  time  to 
carry  out  said  plan. 

5.  That  until  said  plan  is  carried  into  operation  and  effect,  the 
said  twenty-seven  defendants  hereinbefore  named  in  paragraph  two 
of  this  decree,  are,  and  each  of  them  is,  and  the  agents  and  servants 
of  them  are  jointly  and  severally  hereby  enjoined  from  doing  any 
acts  or  act  which  shall  in  any  wise  further  extend  or  enlarge  the  field 
of  operations,  or  the  power  of  the  aforesaid  combination. 

It  is  further  ordered,  adjudged  and  decreed  that  the  said  twenty- 
seven  (27)  defendants,  their  stockholders,  officers,  directors,  servants, 
agents  and  employees  be  and  they  are  hereby  severally  enjoined  and 
restrained  as  follows: 

From  continuing  or  carrying  into  further  effect  after  said  fifteenth 
day  of  December,  191 2,  the  combination  adjudged  illegal  in  this  suit, 
and  from  entering  into  or  forming  among  themselves  or  with  others 
any  like  combination  or  conspiracy,  by  any  method  or  device  what- 
soever, the  effect  of  which  is  or  will  be  to  restrain  interstate  com- 
merce in  explosives  or  to  renew  the  unlawful  monopoly  of  such  com- 
merce obtained  and  possessed  by  the  defendants  as  adjudged  herein, 
in  violation  of  "Act  to  Protect  Trade  and  Commerce  Against  Unlaw- 
ful Restraints  and  Monopolies,"  approved  July  2,  1890,  and  espe- 
cially: 

1.  By  causing  the  conveyance  of  the  factories,  plants,  brands  or 
business  of  either  of  said  two  new  corporations  to  the  other  corpo- 
ration to  E.  I.  duPont  de  Nemours  Powder  Company  or  vice  versa 
after  the  segregation  of  the  properties  among  said  corporations  shall 
have  taken  place  as  herein  provided;  by  placing  the  stocks  of  either 
of  said  corporations  in  the  hands  of  voting  trustees  or  controlling  the 
voting  power  of  such  stocks  by  any  device; 

2.  By  making  any  express  or  implied  agreement  or  arrangement 


Methods  of  Dissolution  469 

with  one  another  or  with  others  relative  to  the  control  or  management 
of  either  of  said  corporations,  or  the  price  or  terms  of  purchase,  or 
of  sale  of  explosives  or  relative  to  the  purchase,  sale,  manufacture, 
or  transportation  of  explosives  which  will  have  the  effect  of  restrain- 
ing interstate  commerce;  or  by  making  any  agreement  or  arrange- 
ment of  any  kind  between  said  corporations  under  which  trade  or 
business  is  apportioned  between  said  coqDorations  in  respect  either 
to  customers  or  localities. 

3.  By  offering  or  causing  to  be  offered  or  making  or  causing  to  be 
made  more  favorable  prices  or  terms  of  sale  for  the  products  manu- 
factured by  them  or  either  of  them  to  the  customers  of  any  rival 
manufacturer  or  manufacturers  than  they  at  the  same  time  offer  to 
make  their  established  trade,  where  the  purpose  is  to  unfairly  cripple 
or  drive  out  of  business  such  rival  manufacturer  or  manufacturers  or 
otherwise  unlawfully  to  restrain  the  trade  and  commerce  of  the 
United  States  in  any  of  said  products;  provided  that  no  defendant 
is  enjoined  or  restrained  from  making  any  price  or  prices  in  the  sale  of 
said  products,  or  any  thereof,  to  meet  or  to  compete  with  prices 
made  by  any  other  defendant,  or  by  any  rival  manufacturer;  and 
provided,  further,  that  nothing  in  this  decree  shall  be  taken  in  any 
respect  to  enjoin  or  restrain  fair,  free  and  open  competition. 

4.  By  either  of  said  corporations  retaining  or  employing  the  same 
clerical  force  or  organization,  or  keeping  the  same  office  or  offices 
as  any  other  of  said  corporations. 

5.  By  either  of  said  corporations  doing  business  directly  or  in- 
directly under  any  other  than  its  own  corporate  name  or  the  name  of 
a  subsidiary  corporation  controlled  by  it;  provided,  however,  that,  in 
case  of  a  subsidiary  corporation,  the  controlling  corporation  shall 
cause  the  products  of  such  subsidiary  corporation  which  are  sold  in 
the  United  States  and  bear  the  name  of  the  manufacturer  to  bear  also 
a  statement  indicating  the  fact  of  such  control. 

It  is  further  ordered,  adjudged  and  decreed  that  said  defendants 
cancel  and  annul: 

a.  Agreement  of  October  2,  1902,  between  William  Barclay  Par- 
sons, of  the  City  of  New  York,  and  the  Delaware  Securities  Company. 
Petitioner's  Record,  Exhibits,  Volume  4,  page  1984. 

b.  Agreement  of  October  6,  1902,  between  H.  deB.  Parsons  of 
the  City  of  New  York,  and  the  Delaware  Securities  Company.  Peti- 
tioner's Record,  Exhibits  Volume  4,  page  1986. 

c.  Agreement  of  the  second  day  of  October,  1902,  between 
Schuyler  L.  Parsons,  of  the  City  of  New  York,  and  the  Delaware 


470  Industrial  Combinations  and  Trusts 

Securities  Company.  retilioner's  Record,  Exhibits,  Volume  4, 
page  1988. 

d.  A  like  and  identical  agreement  made  about  the  same  date 
between  J.  A.  Haskell  and  the  Delaware  Securities  Company,  de- 
scribed in  Petitioner's  Testimony,  Volume  2,  page  1012. 

It  is  further  ordered,  adjudged  and  decreed  that  during  a  period  of 
five  years  from  the  date  hereof  each  of  said  corporations,  the  E.  I. 
duPont  de  Nemours  Powder  Company  and  said  other  two  corpora- 
tions, their  stockholders,  officers,  directors,  agents,  servants  and  em- 
ployees, be  hereby  enjoined  and  restrained  as  follows: 

1.  None  of  said  corporations  shall  have  any  officer  or  director  who 
is  also  an  officer  or  director  in  any  other  of  said  corporations. 

2.  None  of  said  corporations  shall  employ  the  same  agent  or  agents 
for  the  sale  in  interstate  commerce  of  explosives  which  might  be  sold 
in  competition  with  each  other;  provided  that  any  one  of  said  cor- 
porations may  sell  its  products  on  commission  through  a  merchant  or 
dealer  who  is  similarly  employed  by  either  or  both  of  said  corpora- 
tions. 

3.  None  of  said  corporations  shall  directly  or  indirectly  acquire  any 
stock  in  another  of  said  corporations  or  purchase  or  acquire  any  of 
the  factories,  plants,  brands  or  business  of  such  other  corporation. 

It  is  further  ordered,  adjudged  and  decreed  that  each  and  all  of 
the  individual  defendants  by  this  decree  adjudged  to  be  engaged  in 
said  combination,  while  holding  stock  in  said  two  corporations  and 
E.  I.  duPont  de  Nemours  Powder  Company  or  any  two  thereof  be 
enjoined  and  restrained  from  at  any  time  within  three  years  from 
the  date  hereof  acquiring,  owning  or  holding,  directly  or  indirectly, 
any  stock  or  an  legal  or  equitable  interest  in  any  stock  in  either  of 
said  two  corporations  to  which  said  properties  shall  be  transferred, 
in  excess  of  the  amount  to  wrhich  he  may  be  entitled  under  the 
provisions  of  the  plan  herein  mentioned  when  the  same  shall  have 
been  carried  out  as  proposed;  provided,  however,  that  any  of  said 
individual  defendants  may  notwithstanding  this  prohibition  acquire 
from  any  other  or  others  of  said  defendants,  or  in  case  of  death,  from 
their  estates,  any  of  the  stock  held  by  such  other  defendant  or  de- 
fendants in  said  corporations  and  may  acquire  their  proportions  of 
any  increase  of  stock. 

It  is  further  ordered,  adjudged  and  decreed  that  any  new  company 
or  companies  organized  for  the  purpose  of  taking  property  under  the 
provisions  of  this  decree  or  otherwise,  necessary  to  the  carrying  out 
of  this  plan,  shall,  after  their  formation  and  by  appropriate  proceed- 


Methods  of  Dissolution  471 

ings,  be  made  parties  to  this  cause,  and  subject  to  the  provisions  of 
this  decree  and  bound  by  the  injunctions  herein  granted. 

It  is  further  ordered,  adjudged  and  decreed  that  any  party  hereto 
may  make  application  to  this  Court  for  such  orders  and  directions  as 
may  be  necessary  or  proper  in  relation  to  the  carrying  out  of  such 
plan  and  the  provisions  of  this  decree. 

It  is  further  ordered,  adjudged  and  decreed  that  the  twenty-seven 
(27)  defendants  hereinabove  mentioned,  do  pay  to  the  United  States 
Government  its  cost  in  this  cause. 

It  is  further  ordered,  adjudged  and  decreed  that  jurisdiction  of  this 
cause  is  retained  by  this  Court,  for  the  purpose  of  making  such  other 
and  further  orders  and  decrees  as  may  become  necessary  for  carrying 
out  the  plan  herein  set  forth. 

It  is  further  ordered,  adjudged  and  decreed  that  after  the  plan  here- 
inabove mentioned  shall  have  been  carried  into  effect  a  report  shall 
be  made  to  this  Court  for  its  approval,  setting  out  the  manner  in 
which  said  plan  shall  have  been  carried  out. 


CHAPTER  XV 
EFFICACY  OF  DISSOLUTION 

NOTE 

The  pronounced  opposition  that  developed  upon  the  part  of  the 
independents  to  the  method  of  dissolution  proposed  by  the  American 
Tobacco  Company  led  to  an  interesting  controversy  as  to  the  efficacy 
of  the  method  employed.  Effort  has  been  made  to  set  forth  both 
sides  of  the  controversy  and  also  to  have  the  exhibits  show  how 
the  independents  would  have  worked  out  the  dissolution  process. 

At  the  moment  this  book  goes  to  the  publishers,  a  controversy  has 
developed  over  the  efficacy  of  the  dissolution  of  the  Standard  Oil 
Company.  As  the  last  exhibit  in  the  chapter  shows,  it  is  alleged  that 
this  dissolution  has  been  merely  a  farce. — Ed. 

Exhibit  i 
results  of  the  tobacco  dissolution  plan  as  claimed  by  the 

PETITIONERS  x 

Your  Petitioners  show  unto  the  Court  that  upon  the  adoption  and 
execution  of  this  plan  the  combination  heretofore  adjudged  to  exist 
will  have  been  effectually  dissolved,  and  out  of  the  elements  hereto- 
fore composing  the  same,  a  new  condition  which  will  be  honestly  in 
harmony  with  and  not  repugnant  to  the  law,  will  have  been  brought 
about  as  follows: 

The  tin  foil  business  now  done  and  controlled  by  The  Conley  Foil 
Company  will  be  divided  into  two  companies  having  no  interest 
whatsoever  the  one  in  the  other,  and  neither  in  a  dominant  position 
with  respect  to  the  tin  foil  business. 

The  licorice  business  now  done  and  controlled  by  MacAndrews  & 
Forbes  Company  will  be  divided  into  two  companies  with  no  interest 
in  nor  connection  with  each  other,  and  neither  in  a  dominant  position 
in  the  licorice  business. 

1  United  States  of  America  v.  The  American  Tobacco  Company  and  others. 
Petition  of  the  American  Tobacco  Co.,  In  the  Circuit  Court  of  the  United  States 
for  the  Southern  District  of  New  York,  pp.  29-31. 

472 


Efficacy  of  Dissolution  473 

American  Stogie  Company  will  be  dissolved,  and  its  business  dis- 
integrated. 

The  business  of  American  Cigar  Company  will  be  disintegrated  and 
it  will  have  no  dominant  position  in  any  branch  of  the  cigar  business. 

The  snuff  business  now  done  and  controlled  by  American  Snuff 
Company  will  be  divided  into  three  companies,  American  Snuff 
Company  itself  and  two  other  companies  to  be  organized,  and  none  of 
the  three  will  have  any  interest  in  nor  connection  with  either  of  the 
others. 

The  American  Tobacco  Company,  through  distribution  out  of  its 
surplus,  will  have  denuded  itself  of  any  interest  in,  or  control  over, 
the  tin  foil  business,  the  licorice  business  and  the  snuff  business. 

It  will  have  stripped  itself  of  any  interest  in  or  control  over  R.  J. 
Reynolds  Tobacco  Company,  a  company  manufacturing  and  selling 
tobacco  in  the  Southern  States. 

It  will  have  completely  severed  all  relations  with  the  Porto 
Rican-American  Tobacco  Company,  manufacturing  and  selling 
cigarettes  and  cigars  in  Porto  Rico,  and  selling  in  the  United  States 
cigars  manufactured  in  Porto  Rico. 

It  will  have  divested  itself  of  all  interest  in  or  association  with 
British- American  Tobacco  Company,  Limited,  The  Imperial 
Tobacco  Company  (of  Great  Britain  and  Ireland),  Limited. 

It  will  have  parted  with  all  its  interest  in  United  Cigar  Stores 
Company,  a  company  engaged  in  the  retail  distribution  of  cigars 
and  tobacco. 

The  American  Tobacco  Company  itself,  as  an  operating  company, 
will  be  broken  into  three  companies,  each  completely  equipped  for 
the  conduct  of  a  large  tobacco  business,  neither  of  which  will  own 
any  interest  in  any  other,  and  neither  of  which  will  be  dominant  in 
the  tobacco  trade,  whether  reference  be  had  to  proportion  of  sales 
in  any  branch  of  the  business,  or  regard  be  had  to  dominating  own- 
ership of  popular  and  valuable  brands,  or  regard  be  had  to  pur- 
chase of  any  type  of  leaf  tobacco,  or  regard  be  had  to  any  other 
measure  of  importance  in  the  tobacco  trade. 

All  covenants  that  prevent  The  American  Tobacco  Company 
from  extending  its  business  abroad,  or  British-American  Tobacco 
Company,  Limited,  or  The  Imperial  Tobacco  Company  (of  Great 
Britain  and  Ireland),  Limited,  from  extending  their  business  in 
the  United  States,  will  be  terminated,  and  each  will  be  free  to  en- 
gage in  business  throughout  the  world. 

All  covenants  not  to  engage  in  the  tobacco  business  made  by 


474  Industrial  Combinations  and  Trusts 

vendors  or  others  will  be  terminated,  leaving  all  free  to  engage  in 
any  branch  of  the  tobacco  business. 

Thus  the  business  in  tobacco  and  related  products  heretofore  con- 
trolled by  The  Amercian  Tobacco  Company,  or  by  companies  in 
which  it  owns  a  controlling  or  large  interest,  will  not  only  be  com- 
pletely divorced  from  such  control,  but  will  be  distributed  among 
fourteen  separate  and  independent  companies,  none  of  which  will 
have  any  control  over  or  interest  in  any  other,  and  none  of  which 
will  have  any  preponderating  influence  in  any  branch  of  the  busi- 
ness, either  as  a  manufacturing  company,  a  selling  company,  or 
as  a  purchaser  of  any  type  of  leaf  tobacco. 

Finally,  no  small  group  of  men,  nor  even  the  twenty-nine  indi- 
vidual defendants  in  the  aggregate,  will  own  the  control  of  any  of  the 
principal,  accessory  or  subsidiary  companies  defendant,  and  the 
control  of  The  American  Tobacco  Company  itself  and  of  the  new 
companies  to  be  formed  will  be  vested  in  a  body  of  more  than  six 
thousand  stockholders. 


Exhibit  2 

claim  of  the  american  tobacco  company  with  respect  to  the 
division  of  the  tobacco  business  of  the  united  states  by 
volume  and  value  * 

Percentage  in  Percentage 
Volume  (Lbs.         in 
or  Thousands)      Value 
Cigarettes 

American  Tob.  Co 37.11  33-15 

Liggett  &  Meyers 27.82  21.03 

Lorillard  Co 15.27  26.02 

Others  never  in  any  way  connected  with 

the  combination 19.80  19.80 

Smoking  Tobacco 

American  Tob.  Co 33-°%  4°-53 

Liggett  &  Myers 20.05  16.47 

Lorillard  Co 22.82  18.88 

Reynolds  Tob.  Co 2.66  2.73 

1  Op.  Cit.      Petition  of  the  American  Tobacco  Company.     Exhibit  "B", 
PP- 38-39- 


Efficacy  of  Dissolution  475 

Percentage  in  Percentage 

Volume  (Lbs.  in 
or  lliousands       Value 
Smoking  Tobacco— Continued. 
Others  never  in  any  way  connected  with 

the  combination 2I-39              2I-39 

Plug  Tobacco 

American  Tob.  Co 25-32              22.98 

Liggett  &  Myers 33.83              37.84 

Lorillard  Co 3.73                4.64 

Reynolds  Tob.  Co 18.07              I5-49 

Others  never  in  any  way  connected  with 

the  combination !9-05               I9-°5 

Fine  Cut  Tobacco 

American  Tob.  Co 9.94              I3-52 

Liggett  &  Myers 41.61              36.26 

Lorillard  Co 27.80              29.57 

Others  never  in  any  way  connected  with 

the  combination 2o.65              2°-65 

Cigars 

American  Cigar  Co 6.06               8.90 

Lorillard  Co 5.72                2.88 

American  Stogie  Co 1.58                1.58 

Others  never  in  any  way  connected  with 

the  combination 86.64              86.64 

Snuff 

American  Snuff  Co 32.05              35-55 

Helme  Company 30.88              28.95 

Weyman  &  Bruton  1 29.25              27.68 

Others  never  in  any  way  connected  with 

the  combination 7.82                7.82 

Little  Cigars 

American  Tob.  Co 15.43              i34i 

Liggett  &  Myers 43-78              38-69 

Lorillard  Co 33.84             40.95 

Others  never  in  any  way  connected  with 

the  combination 6.95                6.95 

1  Thus  in  original.     Elsewhere  Weyman-Bruton. — Ed. 


476 


Industrial  Combinations  and  Trusts 


Exhibit  3 

distribution  of  factories  and  principal  brands  as  claimed  by 
the  amercian  tobacco  company  * 


The  American  Tobacco 
Durham,  N.  C. 
New  York, 
Milwaukee,  Wis. 
Danville,  Va., 
Baltimore, 
New  York, 
Baltimore, 
Louisville, 
New  York, 
Baltimore, 
Richmond, 
Nashville, 
Richmond, 
Brooklyn, 
Reidsville,  N.  C. 
Middletown,  Ohio, 
Louisville, 


Company: 

(Blackwell's  Durham  Tobacco  Co.) 

(Butler-Butler,  Inc.) 

(F.  F.  Adams  Tobacco  Co.) 

Danville  Branch — little  cigars. 

Ellis-A — little  cigars. 

Duke  Branch. 

Feigner  Branch. 

Finzer  Branch. 

Kinney  Branch. 

Marburg  Branch. 

Mayo  Branch. 

(Nashville  Tobacco  Works) 

(R.  A.  Patterson  Tobacco  Co.) 

Penn  Street  Branch — cigarettes. 

(F.  R.  Penn  Tobacco  Co.) 

Sorg  Branch. 

National  Branch. 


Liggett  &  Myers  Tobacco  Company: 


Liggett  &  Myers. 

(Spaulding  &  Merrick.) 

Allen  &  Ginter  Branch. 

(John  Bollman  Co.) 

Chicago  Branch. 

Catlin  Branch. 

(Pinkerton  Tobacco  Co.) 

Nail  &  Williams  Tobacco  Co.)  2 

W.  R.  Irby  Branch. 

W.  Duke  Sons  &  Co.  Branch. 

Wilmington- A — little  cigars. 

Philadelphia-A — little  cigars. 

Lorillard  factory. 
(S.  Anargyros.) 


45- 


St.  Louis, 
Chicago, 
Richmond, 
San  Francisco, 
Chicago, 
St.  Louis, 
Toledo, 
Louisville, 
New  Orleans, 
Durham, 
Wilmington,  Del. 
Philadelphia, 
.  Lorillard  Company: 
Jersey  City, 
New  York, 

1  Op.  cit.  Petition  of  the  American  Tobacco  Company.     Exhibit  "D,"  pp.  42- 

2  Thus  in  the  original. — Ed. 


Efficacy  of  Dissolution 


477 


P.  Lorillard  Co: — Continued. 


Middletown,  Ohio, 
Philadelphia, 
Wilmington,  Del., 
Danville,  Va. 
Brooklyn, 
Baltimore, 
Jersey  City,  ) 
Richmond,    ) 


(Luhrman  &  Wilbern  Tobacco  Co.) 
Philadelphia-B — little  cigars. 
Wilmington-B — little  cigars. 
Danville-B — little  cigars. 
Penn  St. — little  cigars. 
Ellis  Branch-B — little  cigars 

(Federal  Cigar  Co.) 


The  American  Tobacco  Company  will  have: 
Smoking  Tobacco  Brands: 
Lucky  Strike, 


Tuxedo, 
Peerless, 

American  Navy, 
Square  Deal, 
Spear  Head, 
Piper  Heidsieck, 

Standard  Navy. 

Sweet  Caporal, 
Pall  Mall, 

Sweet  Caporal. 

Virgin  Leaf. 


Plug  Tobacco  Brands: 


Cigarette  Brands: 

Little  Cigar  Brand: 
Fine  Cut  Brand: 


Bull  Durham, 
Five  Brothers, 
Old  English. 

Ivy, 
Corker, 
Town  Talk, 
Newsboy, 


Hassan, 
Mecca. 


Liggett  &  Myers  Tobacco  Company  will  have: 
Smoking  Tobacco  Brands: 
U.  S.  Marine,  King  Bee, 

Sweet  Tip  Top,  Red  Man, 

Duke's  Mixture,  Velvet. 

Home  Run, 

Plug  Tobacco  Brands: 
Star,  Horse  Shoe. 

Drummond's  Natural  Leaf, 


478 


Industrial  Combinations  and  Trusts 


Liggett  &  Myers  Tobacco  Company  will  have: — Continued. 
Cigarette  Brands: 

American  Beauty,  Imperiales, 

Fatima,  Home  Run, 

Piedmont,  King  Bee. 

Little  Cigar  Brand: 
Recruit. 

Fine  Cut  Brands: 

Sweet  Cuba,n  Sterling. 


P.  Lorillard  Company  will  have: 

Smoking  Tobacco  Brands: 
Union  Leader, 


Sensation, 
Just  Suits, 

Climax, 

Helmar, 
Murad, 
Mogul, 

Between  the  Acts. 

Tiger, 


Plug  Tobacco  Brands: 
Cigarette  Brands: 

Little  Cigar  Brand: 
Fine  Cut  Brands: 

Exhibit  4 


Honest, 
Polar  Bear. 


Planet. 


Turkish  Trophies, 
Egyptian  Deities. 


Century. 


DISTRIBUTION  OF  PURCHASES  OF  DIFFERENT  TYPES  OF  TOBACCO 
WITH  ESTIMATE  OF  AVERAGE  AGGREGATE  AS  CLAIMED  BY  THE 
AMERICAN  TOBACCO  COMPANY  1 

Pounds 

The  American  Tobacco  Company: 

Burley 41,969,957 

Virginia  and  North  Carolina 51,295,870 

Seed  Leaf 6,112,099 

Turkish 2,988,898 

Dark  Western 19A33,3^>5 

1  Op.  Cit.      Petition  of  the  American  Tobacco  Company,  Exhibit  "E," 

pp.  46-47- 


Efficacy  of  Dissolution  479 

Liggett  &  Myers  Tobacco  Company: 

Burley 69,163,946 

Virginia  and  North  Carolina 27,755,411 

Seed  Leaf 5,676,180 

Turkish 558,611 

Dark  Western 3,196,866 

P.  Lorillard  Company: 

Burley 24,074,643 

Virginia  and  North  Carolina 2,556,007 

Seed  Leaf 19,993,726 

Turkish 3,974,386 

Dark  Western 1,446,213 

R.  J.  Reynolds  Tobacco  Company: 

Burley 5,000,000 

Virginia  and  North  Carolina 25,000,000 

Seed  Leaf 

Turkish 

Dark  Western 

British- American  Tobacco  Company,  Limited: 

Virginia  and  North  Carolina 40,000,000 

Other  types 10,000,000 

Estimate  of  Total  Average  Crop: 

Burley 200,000,000 

Virginia  and  North  Carolina 240,000,000 

Dark  Western 200,000,000 

Seed 180,000,000 

Turkish 90,000,000 

Exhibit  5 
claim  of  the  attorney  general  * 

Coming  now  to  the  general  features  of  the  plan  as  proposed;  as 
was  said  here  yesterday,  it  is  a  purely  practical  commercial  problem. 

1  Oral  Argument  of  George  W.  Wickersham  on  Hearing  of  Application  for 
Approval  of  Plan  of  Disintegration  in  the  case  of  the  United  States  v.  The  Amer- 
ican Tobacco  Company.  In  the  Circuit  Court  of  the  United  States  for  the 
Southern  District  of  New  York,  pp.  9-15. 


480  Industrial  Combinations  and  TRUSTS 

I  thought,  when  the  plan  was  before  the  conference,  the  last  time 
that  we  had  a  conference  between  counsel  and  the  court,  that  if 
certain  modifications  were  made  and  certain  features  were  changed 
it  was  getting  along  pretty  nearly  to  a  point  where  your  honors 
would  view  it  with  favor,  and  I  thought  particularly  that  the  dis- 
tribution of  brands,  upon  which  so  much  stress  and  insistence  was 
laid  during  the  trial,  and  the  distribution  of  the  volume  of  pur- 
chases of  raw  material  by  these  various  companies,  was  very  fairly 
worked  out.  After  that  conference,  there  came  to  me  representa- 
tives of  various  interests  that  have  appeared  before  your  Honors 
to-day  and  yesterday,  and  they  brought  to  my  attention  the  same 
considerations  that  they  have  brought  here,  and  I  confess  I  was 
very  much  troubled  by  them.  So  I  turned  to  the  only  authoritative 
source  at  my  disposal  for  the  facts  of  the  subject,  namely,  the 
Bureau  of  Corporations  of  the  Department  of  Commerce  and  La- 
bor, and  the  Commissioner  placed  at  my  disposal  one  of  their  ex- 
perts— indeed  the  principal  expert  in  this  tobacco  business,  who 
had  himself  prepared  very  largely,  if  not  entirely,  the  report  on  the 
tobacco  industry  which  was  recently  published  by  that  bureau; 
and  I  had  a  verbal  report  from  him  a  few  days  ago,  and  to-day  only 
have  I  got  his  written  report.  It  is  not  formal  enough  yet  to  be 
the  report  of  the  Bureau,  but  it  is  the  report  of  a  gentleman  of  very 
large  knowledge  and  experience  in  this  field,  a  gentleman  very 
familiar  with  the  business,  representing  entirely  the  Government's 
side  in  the  matter,  and  who,  on  behalf  of  the  Government,  con- 
ducted the  investigation  which  resulted  in  his  report.  I  am  going 
to  file  that  report  with  the  Court,  because  it  strongly  confirms  the 
impression  that  I  had  as  to  the  fairness  of  distribution  of  industries 
in  the  plan,  and  it  effectually  answers  the  suggestions  made  by  the 
so-called  independents  and  dealers.  I  would  like  to  read  part  of 
that  report  now,  because  we  have  had  so  much  on  the  subject. 
Take  the  distribution  of  brands.  For  the  purpose  of  showing  ex- 
actly the  nature  of  the  distribution  of  the  brands  this  gentleman 
has  prepared,  and  is  to  submit  separately  and  supplemental  to 
this  report,  a  statement  showing  the  output  of  each  brand  assigned 
for  the  different  companies,  the  class  of  the  product  to  which  it 
belongs,  and  the  territorial  distribution;  but  he  does  annex  to  his 
present  report  a  summary  of  the  territorial  distribution  of  the 
products: 

"The  general  result,"  he  says,  "of  my  examination  of  the  brands 
and  their  territorial  distribution  was  that  there  seems  to  be  no  ab- 


Efficacy  of  Dissolution  481 

solute  separation  of  types  and  classes  of  brands  for  the  different  com- 
panies. The  method  of  distribution  by  plant  which  has  been  fol- 
lowed has  resulted  in  the  grouping  of  similar  classes  of  brands,  so 
that  the  high-grade  cigarette,  ordinary  domestic  cigarette,  granu- 
lated tobaccos,  long-cut  and  plug-cut  tobacco,  fine  cut,  plug  and 
twist  brands  assigned  to  each  company  will  not  be  exactly  evenly 
divided.  The  predominance  of  one  company  over  another,  however, 
is  not  such  as  to  entirely  exclude  one  company  from  encroaching  on 
the  territory  of  another.  To  some  extent  the  predominance  of  one 
company  over  another,  in  a  particular  line  of  product,  is  necessary 
on  account  of  the  very  large  output  of  such  individual  brands.  The 
company,  for  instance,  to  which  Bull  Durham  tobacco  is  assigned  on 
account  of  the  very  large  preponderance  of  this  brand  in  its  class  will 
obtain  a  preponderant  position  in  the  higher-priced  granulated 
business.  The  advantages  are,  however,  offset  by  new  brands  dis- 
tributed to  each  of  the  other  concerns,  such  as  'Velvet,'  'Prince 
Albert,'  and  'Our  Advertiser.'  Each  of  these  newer  brands  has  in 
it  the  elements  of  strong  competition,  and  each  seems  fair  to  de- 
velop strength  enough  in  its  own  particular  line  to  make  a  formida- 
ble competitor.  In  the  low-grade  granulated  tobaccos  the  Liggett 
&  Myers  concern  have  a  predominating  position  on  account  of  the 
great  importance  of  the  Duke's  Mixture  brand,  which  makes  up 
nearly  80  per  cent  of  the  low-grade  granulated  tobaccos  produced 
by  the  combination.  Such  a  distribution,  therefore,  which  should 
give  each  of  the  companies  approximately  the  same  proportion  of 
a  particular  class  of  goods,  is  practically  impossible  as  long  as  par- 
ticular brands  make  up  a  large  proportion  of  a  single  line  of  product. 
"In  plug-cut  tobaccos,  principally  distributed  by  P.  Lorillard  and 
the  American  Tobacco  Company,  the  latter  will  hold  a  predom- 
inating position,  but  not  to  the  extent  that  I  had  supposed.  A 
number  of  the  plug-cut  brands  of  the  Lorillard  Company  are  di- 
rectly competitive  with  those  of  the  American  Tobacco  Company, 
which,  as  well  as  those  of  the  former  concern,  have  a  large  sale  in 
New  England,  Pennsylvania,  and  the  Central  States. 

"Long-cut  brands  have  been  assigned  to  all  three  concerns.  It 
can  not  be  said  that  any  one  company  has  local  control  over  this 
class  of  product.  Although  the  Liggett  &  Myers  output  concerns 
itself  principally  with  Chicago  and  its  immediate  environment,  it 
has  brands  which  are  strong  competitors  of  the  American,  and 
which  will  compete  in  almost  all  the  States  directly  writh  the 
American  and  Lorillard  Companies  for  this  class  of  product." 


482  Industrial  Combinations  and  Trusts 

I  will  not  go  through  that,  but  he  has  reviewed  the  great  distribu- 
tion of  brand-  and  finds  that  in  each  instance,  while  there  is  pre- 
dominance given  to  one  company  which  has  a  particularly  profitable 
brand  of  very  large  sale,  there  is  in  every  instance  a  certain  competi- 
tive interest  assigned  to  one  of  the  other  companies,  preventing 
what  is  called  a  monopoly  in  one  held  being  given  to  any  one  of 
these  companies,  even  the  one  which  secures  the  very  large  selling 
brand. 

Take  the  purchasers  of  leaf  tobacco.  He  has  prepared  a  table 
which  is  annexed  to  this  report — -that  is,  the  companies  have  pre- 
pared it  under  his  direction— showing  the  full  distribution  after 
disintegration. 

"It  is  apparent  from  this  tabulation  that  no  one  of  the  compa- 
nies will  have  an  exclusive  or  monopolistic  field  in  the  purchases 
of  any  one  type  or  any  one  grade  of  a  type  of  leaf.  In  fact,  the 
American  Tobacco  Company,  the  Liggett  &  Myers  concern,  the 
Lorillard  Company,  and  the  R.  J.  Reynolds'  Tobacco  Company 
will  each  of  them  be  large  and  important  purchasers  of  Burley 
tobacco.  A  consideration  of  the  amount  of  purchases  of  different 
grades  of  Burley  tobacco  showed,  moreover,  that  these  companies 
would  each  purchase  a  very  considerable  amount  of  the  different 
grades,  so  that  no  one  company  can  be  said  to  have  the  field  in  the 
purchase  of  any  leaf  grade  exclusively  to  itself.  There  will  be  not 
only  an  increase  in  the  number  of  leaf  buyers  in  the  Burley  market, 
but  also  active  competition  for  the  same,  or  similar  grades.  The 
Southern  Leaf  situation  is  very  much  the  same  as  the  Burley 
situation.  The  American  Tobacco  Company,  the  Liggett  &  Myers 
concern,  and  the  British-American  Tobacco  Company  will  be  each 
large  and  important  purchasers  of  Southern  Leaf  of  practically  the 
same  types  and  grades,  and  no  one  company  will  purchase  a  pre- 
ponderating proportion  of  any  particular  group  of  grades  of  this 
type. 

"The  same  type  and  grade  of  Southern  Leaf  may  be  used  in  the 
manufacture  of  such  types  of  cigarettes,  in  the  manufacture  of 
granulated  smoking,  and  in  the  manufacture  of  plug  tobaccos.  It 
is  a  fact,  therefore,  that  though  some  of  the  concerns  may  not  pur- 
chase leaf  for  the  same  products  in  supplying  their  needs  for  the 
entire  field  of  their  operations,  they  must  come  into  active  competi- 
tion against  each  other. 

"The  American  Tobacco  Company  will  purchase  by  far  the 
larger  proportion   of   the   dark   western   tobaccos.     Neither  the 


Efficacy  of  Dissolution  483 

Liggett  &  Myers  nor  the  Lorillard  Company,  or  the  R.  J.  Reynolds 
Company  will  purchase  an  appreciable  amount  of  this  type  of  leaf. 
The  total  purchases  of  the  American  Tobacco  Company  in  this 
field  will  amount  to  about  19,000,000  pounds,  while  that  of  the 
other  companies  will  be  only  a  few  million  pounds  annually.  The 
combination,  however,  is  only  a  small  factor  in  the  western  dark  leaf 
market.  By  far  the  greater  proportion  of  this  class  of  product  is 
purchased  for  foreign  governments.  The  fact  that  the  American 
Tobacco  Company  will  have  no  material  competition  in  this  field 
from  Liggett  &  Myers  or  P.  Lorillard,  therefore,  does  not  deprive 
the  market  of  a  fair  amount  of  competition. 

"While  the  American  Tobacco  Company  is  the  only  concern  in 
the  above  group  that  will  purchase  dark  western  types,  it  should  be 
borne  in  mind  that  there  will  be  competition  to  a  certain  extent  with 
the  American  Snuff  Company  and  Bruton  &  Wayman  !  Company 
and  George  W.  Helme  Company,  which  require  this  same  type  of 
leaf  for  their  products." 

I  lay  great  stress  on  that  report  because  it  is  the  report  of  an 
expert  who  is  unusually  familiar  with  the  subject,  and  who  possesses 
great  knowledge  on  the  subject,  and  it  comes  as  the  result  of  an 
investigation  undertaken  for  the  purpose  of  determining  and  ad- 
vising me  of  the  attitude  which  I  should  take  with  respect  to  the 
practical  commercial  features  of  this  plan ;  and  I  know  of  no  better 
way  of  securing  within  a  short  time  for  the  consideration  of  the 
Court  the  commercial  and  economic  facts  by  which  you  must  be 
guided. 


Now,  there  is  one  feature  of  this  combination  which,  in  my 
personal  experience,  has  been  the  subject  of  more  complaints  than 
all  of  the  rest  put  together.  That  is  the  United  Cigar  Stores 
Company.  The  connection  of  that  organization  with  this  combina- 
tion had  given  the  combination  the  greatest  opportunity  to — I  do 
not  know  that  I  can  say  to  injure,  but  certainly  to  harass,  the 
domestic  trade  and  to  incense  a  larger  number  of  people  than  any- 
thing else  they  have  done,  because  they  have  gone  in  and  reached 
the  poor  corner  dealer,  bought  the  house  over  his  head,  and  when 
his  lease  came  to  an  end,  instead  of  his  being  able  to  renew  it  as 
formerly,  he  finds  that  he  can  not  get  a  renewal  of  the  lease,  that 
it  has  been  taken  by  the  United  Cigar  Stores  Company.  It  was  the 
1  Thus  in  original.     Should  be  Weyman-Bruton. — Ed. 


484  Industrial  Combinations  and  Trusts 

hand  of  the  bi<;  trust;  it  reached  out  and  touched  the  little  man 
who  has  nobody  to  protect  him.  I  have  on  my  files  in  Washington 
letters — my  files  are  full  of  letters  and  complaints  running  down  to 
within  the  last  few  days,  and  I  do  think  if  that  concern  can  be  cut 
loose,  if  as  a  condition  of  this  plan  your  honors  require  them  to 
get  rid,  require  these  defendants  to  get  rid  of  their  stock  in  that 
concern,  it  would  do  more  to  make  the  rest  of  the  plan  acceptable 
to  the  people  of  this  country  than  anything  else  that  could  be  done. 
Of  course  Mr.  Stroock  naturally,  speaking  for  the  United  Cigar 
Stores  Company,  objects  to  that,  because  it  cuts  him  away  from 
that  convenient,  intimate,  and  friendly  relationship  with  the 
sources  of  supply  which  in  the  past  has  been  the  means  of  enabling 
the  company  to  so  prosper.  But  they  have  gone  along;  they  are  a 
great  big  organization  to-day.  They  have  something  like  a  thousand 
stores,  or  seven  hundred  or  eight  hundred,  at  least,  scattered 
throughout  the  country,  and  they  have  ample  capital,  and,  with 
the  impetus  that  they  have  got,  they  are  the  most  potent  compet- 
itor of  the  small  dealer  in  the  United  States.  I  know  they  have 
not  been  adjudged  to  be,  in  specific  language,  an  illegal  combina- 
tion, but  each  and  every  part  of  this  combination  has  been  adjudged 
by  this  decree  to  be  illegal.  The  decree  is  comprehensive  enough  to 
include  them,  if  your  honors  shall  be  so  advised — comprehensive 
enough  to  empower  your  honors  to  include  them,  just  as  much  as 
any  one  of  the  corporations  or  combinations  before  you.  Therefore, 
I  say,  it  is  entirely  within  your  honors'  power,  whether  you  choose 
to  exercise  it  or  not,  to  say,  as  a  condition  of  this  plan:  You  have  got 
to  get  rid  of  them  and  turn  them  loose  so  that  that  concern  will  no 
more  have  any  connection  with  the  American  Tobacco  Company 
or  with  any  of  the  distributive  companies  or  with  any  of  these 
individuals  who  have  built  up  this  combination  through  so  many 
years. 


Efficacy  of  Dissolution  485 


Exhibit  6 

Objections  of  National  Cigar  Leaf  Tobacco  Association,  the 
Cigar  Manufacturers'  Association,  and  the  Independent 
Tobacco  Salemen's  Association  to  the  Plan  of  Disinte- 
gration, Filed  by  the  American  Tobacco  Co.  and  Others 
October  16,  191 1  ] 

Louis  D.  Brandeis,  Felix  H.  Levy,  counsel  for  remonstrants. 

United  States  of  America  against  American  Tobacco  Co.  and  others. 

To  the  honorable  circuit  judges  sitting  in  the  southern  district  of 
New  York: 

The  above-named  associations,  in  pursuance  of  leave  granted 
October  18,  191 1,  respectfully  submit  herewith  certain  objections 
to  said  plan. 

We  submit  that  the  plan  is  not  in  accordance  with  the  opinion 
of  the  Supreme  Court  of  the  United  States  in  this  cause.  The  plan 
if  approved,  would  result  in  legalizing  monopoly  instead  of  restoring 
competition.  Its  effect  upon  the  tobacco  planters,  independent 
tobacco  manufacturers,  the  jobbers,  the  retailers,  and  upon  labor 
engaged  in  the  manufacture  of  tobacco  products  would  be  more 
injurious  than  the  continuance  of  the  present  illegal  monopoly. 

I. 

Fundamental  Defects. 

There  are  five  fundamental  defects  in  the  plan,  each  so  serious 
that  it  forms  alone  a  sufficient  ground  for  the  rejection  of  the  plan. 

common  ownership. 

First.  The  plan  proposes  to  divide  the  main  properties  of  the 
trust  among  several  corporations  legally  distinct,  but  to  distribute 
the  stock  in  these  several  corporations  pro  rata  among  common- 
stock  holders  of  the  American  Tobacco  Co.  No  plan  can  be  effective 
to  restore  competition  which  does  not  include  as  an  essential  condition 
a  provision  that  the  separate  corporations  or  segments  which  are  to 
carry  forward  the  business  of  the  trust  shall  at  the  outset  and  for  a 

1  Hearings  before  the  Committee  on  Interstate  Commerce  on  the  Control  of 
Corporations,  Persons,  and  Firms  engaged  in  Interstate  Commerce.  United 
States  Senate,  62nd  Cong.,  2nd  Sess.  1911-1912,  pp.  315-322. 


486  I\in    rsiAi   Combinations  and  Trusts 

limited  period  thereafter,  be  owned  by  absolutely  distinet  groups  of  in- 
dividuals.* 

(a)  Under  the  i)roposed  distribution  of  the  securities  of  the 
several  corporations  formed  to  carry  forward  the  business  of  the 
trust  as  alleged  competitors,  competition  between  these  concerns 
would  of  course  be  legally  possible,  but  common  ownership  of  the 
slock  would  make  it  certain  that  in  fact  there  would  be  (at  least 
in  the  immediate  future)  no  real  competition.  This  would  be  so, 
no  matter  how  great  the  number  of  corporations  into  which  the 
business  of  the  trust  were  divided.  It  is  contended  that  the  29 
individual  defendants  control  to-day  only  56  per  cent  of  the  voting 
power  of  the  American  Tobacco  Co.,  and  that  under  the  plan  they 
will  control  a  smaller  per  cent  of  the  stock  and  voting  power  of  the 
several  segments  into  which  the  trust  is  to  be  divided.  But  it  is 
obvious  that  a  legal  majority  of  the  stock  of  a  corporation  is  not 
essential  to  actual  control.  A  small  minority  may  control;  and  as 
the  same  individuals  would  at  the  outset  select  the  directors  and 
the  officers  of  each  of  these  colorable  competitors,  it  is  certain  that 
the  officers  and  the  directors  of  the  several  companies  would  be 
friendly,  if  not  in  fact  identical. 

(b)  In  view  of  the  past  affiliations  of  these  stockholders,  no 
reasonable  assurance  of  competition  between  the  several  segments 
of  the  trust  can  be  had,  unless  each  segment  is  owned  by  an  en- 
tirely distinct  group  of  individuals.  Such  ownership  of  separate 
corporations  by  distinct  groups  of  individuals  was  the  condition 
which  existed  prior  to  the  illegal  combination  which  restrained 
competition.  Real  competition  is  not  a  commercial  possibility 
unless  that  essential  condition  of  competition  be  restored. 

(c)  The  framing  of  a  plan  for  dividing  among  distinct  groups  of 
individuals  the  stock  of  the  several  companies  which  take  over  the 
properties  of  the  trust  would  present  no  serious  difficulties.  The 
division  would  be  effected  by  valuation  and  allotment  in  a  manner 
similar  to  that  pursued  when  partition  is  made  among  heirs  or  other 
tenants  in  common  of  several  parcels  of  land,  whereby  each  person 
is  allotted  in  severalty  a  particular  parcel  of  real  estate  formerly 
held  in  common. 

(d)  It  is  essential  that  the  ownership  of  the  stock  in  the  different 
corporations  which  are  to  carry  forward  the  business  of  the  trust 
as  competitors  of  one  another  should  not  merely  be  held  at  the 
outset  by  distinct  groups  of  individuals,  but  that  it  should  be  so 

1  Italics  are  the  editor's. 


Efficacy  of  Dissolution  487 

held  for  a  limited  period  thereafter,  say,  for  five  years.  Provision 
should  therefore  be  made  prohibiting  by  injunction  those  who  at 
the  time  of  distribution  acquire  stock  in  any  one  of  the  segment 
corporations  from  acquiring  stock  during  such  period  in  any  other 
of  the  segments.  This  injunction  should  not  be  confined  in  its 
operation  to  the  29  individual  stockholders  who  are  now  named  as 
defendants.  It  should  extend  to  every  stockholder  who  participates 
in  the  distribution  under  the  plan.  No  legal  or  practical  difficulty 
would  present  itself  in  the  adoption  of  such  a  course.  The  stock- 
holders would  be  made  parties  to  the  proceeding  and  bound  by 
the  decree  in  the  same  manner  that  a  decree  becomes  operative  upon 
a  purchaser  at  a  foreclosure  sale. 

DOMINATING   CONCERNS. 

Second.  The  plan  provides  for  a  division  (generally)  among  only 
three  huge  corporations  of  nearly  all  of  the  properties  now  held  by 
the  trust.  No  plan  can  be  effective  to  restore  competition  which 
does  not  include  as  an  essential  condition  that  no  department  of 
the  tobacco  business  now  conducted  by  the  trust  shall  be  divided 
into  segments  so  large  as  to  prevent  the  independents  engaged  in 
that  branch  of  the  business  from  competing  with  them  under  fair 
conditions. 

Under  the  plan  each  one  of  the  three  or  four  corporations  designed 
to  carry  forward  the  main  businesses  of  the  trust  would  hold  alone  so 
large  a  percentage  of  the  whole  business  of  the  country  in  the  re- 
spective departments  of  the  tobacco  trade  as  to  dominate  the  in- 
dependents engaged  in  that  department  of  the  tobacco  business, 
whether  as  planters,  manufacturers,  or  dealers,  and  thus  unreason- 
ably restrain  trade.  The  three  or  four  concerns  formed  to  carry  for- 
ward the  main  business  of  the  Tobacco  Trust  wrould  together  be 
in  a  position  to  crush  the  independents  even  more  effectually  than 
has  been  done  in  the  past. 

In  determining  how  large  the  several  segments  into  which  the 
trust's  business  is  to  be  divided,  may  properly  be,  existing  trade 
conditions  must  be  considered.  The  question  is  one  that  should  be 
decided  not  by  generalizations,  but  by  reference  to  the  specific  com- 
mercial facts  prevailing  in  the  several  departments  of  the  tobacco 
trade.  That  each  of  the  three  or  four  corporations  would  under 
the  proposed  plan  in  fact  dominate  and  could  crush  the  existing 
independents  becomes  clear  when  their  relative  positions  in  the  trade 
is  considered. 


488  Industrial  Combinations  and  Trusts 


CIGARETTES. 

A.  The  cigarette  business  of  the  trust  is  divided  by  the  plan  among 
three  concerns.  It  should  be  divided  among  at  least  seven  separate 
concerns. 

The  American  Tobacco  Co.  would  have  33.15  per  cent  in  value 
of  the  whole  cigarette  business  of  the  country;  the  Lorillard  Co., 
26.02  per  cent;  and  the  Liggett  &  Myers  Co.,  21.03  Pcr  ccnt-  All 
of  the  independents  together  control  only  19.S0  per  cent.  Each  of 
the  three  companies  among  which  the  trust's  cigarette  business  is 
to  be  divided  would  thus  start  with  a  cigarette  business  greater  than 
the  aggregate  business  of  all  the  independents. 

(a)  While  it  is  undesirable  to  place  a  limit  upon  the  size  to  which 
a  business  may  grow,  or  to  determine  the  proportion  of  the  whole 
business  of  the  country  in  any  article  which  may  properly  be  ac- 
quired by  one  concern  through  such  growth,  it  is  absolutely  neces- 
sary to  take  relative  size  into  consideration  when  it  is  sought  to 
restore  competition  which  has  been  suppressed  through  illegal  com- 
bination. 

(b)  Furthermore,  under  the  plan  the  distribution  of  the  brands  of 
cigarettes  is  such  that  each  of  the  three  colorable  competitors  who  are 
to  carry  forward  the  business  of  the  trust  will,  as  against  the  other 
two,  dominate  a  particular  branch  or  market  of  the  cigarette  trade. 

(c)  In  considering  the  propriety  of  dividing  the  present  cigarette 
business  of  the  trust  into  more  than  3  units,  it  should  be  noted  that 
this  business  represents  the  absorption  into  the  trust  of  18  separate 
business  concerns,  that  the  cigarettes  now  manufactured  by  the 
trust  are  of  several  distinct  classes,  and  that,  according  to  latest 
information  available,  the  trust  even  now  manufactures  its  cigarettes 
in  7  separate  factories. 

SMOKING  TOBACCO. 

B.  The  smoking- tobacco  business  of  the  trust  is  divided  by  the 
plan  among  4  concerns.  It  should  be  divided  among  at  least  12 
separate  concerns. 

(a)  The  American  Tobacco  Co.  would,  under  the  plan,  have  40.53 
per  cent  in  value  of  the  whole  smoking-tobacco  business  of  the  coun- 
try; the  Lorillard  Co.,  18.88  per  cent;  and  the  Liggett  &  Myers  Co., 
16.47  Per  cent;  while  all  the  independents  together  would  have  only 
21.39  per  cent.  In  other  words,  the  American  Tobacco  Co.  would 
alone  have  a  smoking-tobacco  business  nearly  twice  that  of  all  the 


Efficacy  of  Dissolution  489 

independents  together.  The  Liggett  &  Myers  Co.  and  the  Lorillard 
Co.  would  each  start  with  a  smoking-tobacco  business  nearly  as 
large  as  the  aggregate  business  of  all  the  independents. 

(b)  Furthermore,  under  the  plan,  the  distribution  of  the  brands 
is  such  that  three  of  the  four  colorable  competitors  would,  as  against 
the  others,  dominate  a  particular  branch  or  market  of  the  smoking- 
tobacco  trade. 

(c)  In  considering  the  propriety  of  insisting  upon  dividing  the 
smoking-tobacco  business  of  the  trust  among  a  larger  number  of 
corporations,  it  should  be  remembered  that  the  smoking-tobacco 
business  now  controlled  by  the  trust  is  the  result  of  combining  over 
57  separate  businesses;  that  the  smoking  tobacco  manufactured  is  of 
several  distinct  classes;  and  that  at  the  present  time,  and  accord- 
ing to  the  latest  information  available,  the  trust  manufactures  its 
smoking  tobacco  in  12  different  factories. 

PLUG  TOBACCO. 

C.  The  plug-tobacco  business  of  the  trust  is  to  be  divided,  by  the 
plan,  among  4  companies.  It  should  be  divided  among  at  least  12 
separate  concerns. 

(a)  Liggett  &  Myers  Co.  would  have,  under  the  plan,  37.84  per 
cent  in  value  of  the  plug-tobacco  business  of  the  country,  the  Amer- 
ican Tobacco  Co.  22.98  per  cent,  and  the  Reynolds  Tobacco  Co. 
15.49  per  cent,  as  against  only  19.05  per  cent  now  held  by  all  the 
independents  together.  Liggett  &  Myers  Co.  would  have  a  plug- 
tobacco  business  nearly  twice  as  large  as  the  aggregate  business  of 
all  the  independents.  The  American  Tobacco  Co.'s  plug-tobacco 
business  would  be  larger  than  the  aggregate  of  all  the  independents, 
and  the  Reynolds  Tobacco  Co.'s  plug- tobacco  business  would  be 
more  than  three-quarters  the  aggregate  business  of  all  the  inde- 
pendents. 

(b)  Furthermore,  under  the  plan,  the  distribution  of  the  brands 
is  such  that  at  least  two  of  the  four  companies  would,  as  against  the 
others,  dominate  particular  branches  or  markets  of  the  plug-tobacco 
trade. 

(c)  In  considering  the  propriety  of  dividing  the  plug-tobacco 
business  of  the  trust  among  a  larger  number  of  corporations,  it  should 
be  noted  that  the  present  plug-tobacco  business  of  the  trust  is  the 
result  of  combining  at  least  43  separate  concerns;  that  plug  tobacco 
manufactured  by  the  trust  is  of  several  distinct  classes;  and  that, 


49°  Industrial  Combinations  and  Trusts 

according  to  the  latest  information  available,  the  trust  manufactures 
its  plug  tobacco  in  12  different  factories. 

LITTLE   CIGARS. 

D.  The  little-cigar  business  of  the  trust  is  divided,  by  the  plan, 
among  three  concerns.  It  should  be  divided  among  at  least  seven 
separate  concerns. 

(c)  The  Lorillard  Co.  would,  under  the  plan,  have  40.95  per  cent 
in  value  of  the  little-cigar  business  of  the  whole  country,  the  Liggett 
&  Myers  Co.  would  have  38.69  per  cent,  and  the  American  Tobacco 
Co.  13.41  per  cent,  as  against  only  6.95  per  cent  held  by  the  aggre- 
gate of  all  the  independents.  That  is,  the  Lorillard  Co.  would  con- 
trol nearly  seven  times  as  much  little-cigar  business  as  the  aggregate 
of  all  the  independents,  the  Liggett  &  Myers  Co.  over  six  times  as 
much,  and  the  American  Tobacco  Co.  nearly  twice  as  much. 

(b)  In  considering  the  propriety  of  dividing  the  little-cigar  business 
of  the  trust  among  a  greater  number  of  corporations,  it  should  be 
remembered  that  this  business,  though  largely  developed  by  the 
trust,  rests  upon  a  combination  of  distinct  business  concerns;  that 
the  little  cigars  are  of  several  distinct  qualities,  and  that,  according 
to  the  latest  information  available,  the  trust  now  does  its  little-cigar 
manufacturing  in  seven  separate  factories. 

SNUFF. 

E.  The  snuff-tobacco  business  of  the  trust  is  divided  by  the  plan 
into  three  parts.    It  should  be  divided  among  six  separate  concerns. 

(a)  The  American  Snuff  Co.  would,  under  the  plan,  have  35.55 
per  cent  in  value  of  the  whole  snuff  business  of  the  country,  the 
George  W.  Helme  Co.  28.95  Per  cent,  and  the  Weyman  &  Bruton 
Co.  27.68  per  cent,  as  against  7.82  per  cent  now  controlled  by  all 
the  independents  together.  That  is,  the  American  Snuff  Co.  would 
have  a  snuff  business  more  than  four  times  as  large  as  the  aggregate 
snuff  business  of  all  the  independents,  and  the  George  W.  Helm  1  Co. 
and  the  Weyman  &  Bruton  2  Co.  a  snuff  business  each  more  than 
three  times  as  large  as  the  aggregate  business  of  all  the  independents. 

(b)  In  considering  the  propriety  of  the  division  of  the  snuff  busi- 
ness of  the  trust  among  a  larger  number  of  concerns,  it  should  be 
borne  in  mind  that  the  present  snuff  business  of  the  trust  is  the  result 
of  combining  29  separate  concerns,  and  that,  according  to  the  latest 
information  available,  it  now  manufactures  snuff  in  more  than  three 
factories. 

1  Thus  in  original.     Should  be  Helme. — Ed. 

2  Thus  in  original.     Should  be  Weyman-Bruton. — Ed. 


Efficacy  of  Dissolution  491 


LICORICE   PASTE. 

F.  The  licorice-paste  business  of  the  trust  is  divided,  under  the 
plan,  into  two  parts.  It  should  be  divided  among  at  least  four 
separate  concerns. 

The  trust,  through  the  MacAndrews  &  Forbes  Co.,  now  controls 
go  per  cent  of  the  licorice-paste  business  of  the  country.  There  is 
but  one  independent  manufacturer,  and  until  the  commencement 
of  this  suit  that  manufacturer  conducted  the  business  under  an 
agreement  in  combination  with  the  trust. 

(a)  Under  the  plan  the  trust's  licorice-paste  business  is  to  be  di- 
vided among  two  concerns,  so  that  the  MacAndrews  &  Forbes  Co. 
will  retain  about  60  per  cent  of  the  whole  licorice  paste  business  of 
the  country,  and  the  J.  S.  Young  Co.  have  about  30  per  cent.  Thus 
the  MacAndrews  &  Forbes  Co.  will  have  a  licorice-paste  business  six 
times  as  large  as  that  of  the  independent  manufacturer,  and  the 
J.  S.  Young  Co.  a  business  nearly  three  times  as  large. 

(b)  In  considering  the  propriety  of  dividing  the  licorice-paste 
business  among  a  larger  number  of  concerns,  it  should  be  borne  in 
mind  that  the  present  licorice-paste  business  of  the  trust  is  the  result 
of  combining  six  separate  concerns. 

(c)  The  control  by  the  trust  of  the  licorice-paste  business  gave  it 
control  of  the  chewing-tobacco  business,  as  chewing  plug  can  not 
be  made  without  licorice;  and  its  control  of  the  licorice-paste  business 
of  the  whole  country  is  fortified  by  its  control  of  the  raw  material, 
licorice  root.  The  plan  makes  no  provision  for  breaking  the  trust's 
monopoly  of  licorice  root. 

(d)  The  plan  also  omits  to  provide  for  a  cancellation  of  those 
covenants  by  which  those  whose  licorice-paste  business  was  ab- 
sorbed by  the  trust  are  precluded  from  reentering  the  business. 

TIN  FOIL 

G.  The  tin-foil  business  of  the  trust  is  divided  by  the  plan  into 
two  parts.  It  should  be  divided  among  at  least  five  separate  con- 
cerns. 

(a)  The  exact  percentage  of  the  tin-foil  business  of  the  country 
controlled  by  the  trust  is  not  stated  in  the  petition.  It  is,  however, 
so  large  a  percentage  of  the  whole  tin-foil  business  of  the  country 
that  the  division  of  the  trust's  tin-foil  business  between  the  Conley 
Tin  Foil  Co.  and  the  Johnson  Tin  Foil  &  Metal  Co.,  as  proposed, 
would  still  leave  the  Conley  Tin  Foil  Co.  in  a  dominant  position. 


492  Industrial  Combinations  and  Trusts 

(b)  The  plan  also  omits  to  provide  for  a  cancellation  of  those 
covenants  by  which  those  whose  tin-foil  business  was  absorbed  by 
the  trust  are  precluded  from  reentering  the  business. 

"completely  equipped"  concerns 

Third.  The  plan  provides  that  the  three  companies  among  which 
all  the  manufacturing  properties  of  the  trust  are  divided  shall  be 
"each  completely  equipped  for  the  conduct  of  a  large  tobacco  busi- 
ness." No  independent  concern  is  now  "completely  equipped  for 
the  conduct  of  a  large  tobacco  business,"  or  indeed  completely 
equipped  to  do  any  tobacco  business  covering  all  the  main  branches 
of  the  tobacco  trade.  No  plan  to  restore  competition  can  be  effective 
which  does  not  include  as  an  essential  condition  that  the  several 
concerns  which  are  to  carry  forward  the  business  of  the  trust  shall 
be,  at  the  outset,  of  a  character  similar  to  that  of  the  remaining  in- 
dependent concerns.  It  follows  that  any  corporation  taking  over 
a  part  of  the  plug-tobacco  business  or  smoking-tobacco  business  of 
the  trust  shall  not  take  over  any  of  the  cigarette  or  cigar  business; 
that  a  corporation  taking  over  a  part  of  its  cigarette  business  shall 
not  take  over  any  of  its  smoking-tobacco  business,  plug-tobacco 
business,  or  cigar  business;  and  that  a  corporation  taking  over  any 
part  of  the  cigar  business  shall  not  take  over  any  of  its  smoking- 
tobacco  business,  plug-tobacco  business,  or  cigarette  business. 

(a)  Under  the  proposed  plan  the  American  Tobacco  Co.  would 
have  a  cigarette  department  with  33.15  per  cent  in  value  of  the 
whole  cigarette  business  of  the  country,  a  smoking-tobacco  depart- 
ment with  40.53  per  cent  of  the  whole  smoking-tobacco  business  of 
the  country,  a  plug-tobacco  department  with  22.98  per  cent  of  the 
whole  plug-tobacco  business  of  the  country,  a  fine-cut-tobacco 
department  with  13.52  per  cent  of  the  whole  fine-cut- tobacco  busi- 
ness of  the  country,  a  cigar  department  with  8.90  per  cent  of  the 
whole  cigar  business  of  the  country,  and  a  little-cigar  department 
with  13.41  per  cent  of  the  whole  little-cigar  business  of  the  country. 
In  the  Liggett  &  Meyers  Co.  the  percentages  would  be  21.02  per 
cent  in  the  cigarette  department,  16.47  Per  cent  *n  the  smoking- 
tobacco  department,  37.84  per  cent  in  the  plug-tobacco  department, 
36.26  per  cent  in  the  fine-cut-tobacco  department,  and  38.69  per 
cent  in  the  little-cigar  department.  The  Lorillard  Co.  would  have 
a  cigarette  department  with  26.02  per  cent,  a  smoking-tobacco 
department  with  18.88  per  cent,  a  plug-tobacco  department  with 
4.64  per  cent,  a  fine-cut-tobacco  department  with  29.57  per  cent, 


Efficacy  of  Dissolution  493 

a  cigar  department  with  2.88  per  cent,  and  a  little-cigar  department 
with  40.95  per  cent. 

(b)  The  impossibility  of  fair  competition  between  the  independ- 
ents and  these  four  companies,  into  which  it  is  proposed  to  divide 
the  manufacturing  business  of  the  trust,  is  due  to  the  cumulative 
effect  of  three  distinct  advantages  which  the  trust  has  secured 
through  its  illegal  combination: 

1.  The  large  percentage  of  the  whole  business  in  any  department 
which  each  would  have  as  compared  with  the  independents. 

2.  The  fact  that  its  business  extends  over  all  departments  of  the 
tobacco  trade. 

3.  The  fact  that  the  trust  holds  and  is  proposing  to  distribute 
among  the  three  companies  certain  brands  which  are  practically 
indispensable  to  the  successful  conduct  of  business  by  any  jobber  or 
retailer  of  tobacco. 

Each  company  would  therefore  be  enabled,  by  means  of  these 
"indispensable  brands,"  to  largely  compel  dealers  to  give  prefer- 
ence to  its  other  products  over  those  of  the  existing  independents. 
It  would  also,  by  use  of  the  huge  profits  derived  from  those  indis- 
pensable brands,  be  enabled  to  crush  these  independents  as  com- 
petitors of  other  departments  of  its  business. 

(c)  In  considering  the  propriety  of  limiting  the  number  of  de- 
partments of  the  tobacco  business  of  the  trust  which  should  be 
allotted  under  the  plan  to  any  single  company,  it  should  be  noted 
that  prior  to  the  trust's  illegal  operations  no  one  concern  was  so 
"completely  equipped"  and  that  the  present  business  of  the  trust 
is  the  result  of  combining  and  absorbing  illegally  at  least  250  sep- 
arate concerns;  that  furthermore,  even  to-day,  the  trust  manu- 
factures its  products  in  at  least  100  different  factories;  that  in 
none  of  these  does  it  now  manufacture  all  of  the  several  tobacco 
products  which  it  is  proposed  to  handle  through  each  of  these  "  com- 
pletely equipped  companies";  and  that  also  in  the  selling  of  its 
product  it  employs  separate  salesmen  for  different  classes  of  tobacco 
products. 

RESTRAINTS   ON   UNFAIR  COMPETITION. 

Fourth.  The  plan  contains  no  provision  under  which  the  several 
corporations  which  are  to  carry  forward  the  manufacturing  busi- 
ness of  the  trust  will  be  enjoined  from  practicing  those  methods  of 
unfair  competition  by  means  of  which  the  trust  has  in  the  past 


494  Industrial  Combinations  and  Trusts 

overcome  its  competitors.  It  is  clear  that  for  a  limited  period  the 
independents  should  have  more  protection  than  would  ordinarily 
be  necessary  in  trade  where  one  concern  has  not  succeeded  in  ille- 
gally dominating  the  trade.  For  this  reason  it  is  not  sufficient  that 
the.corporations  carrying  forward  the  business  of  the  trust  be  merely 
enjoined  from  a  continuation  of  the  illegal  practices  pursued  by 
the  trust;  they  should  also  be  prohibited  for  a  limited  period — say, 
five  years,  and  such  further  time,  if  any,  as  the  court  may  here- 
after order — against  other  practices  not  necessarily  illegal,  but 
which  if  resorted  to  at  the  outset  would  tend  to  stifle  competition. 
The  plan  should  therefore  include,  among  other  acts  to  be  pro- 
hibited for  such  limited  period,  the  following: 

(A)  Each  corporation  which  is  to  carry  forward  any  part  of  the 
manufacturing  business  of  the  trust  should  be  restrained — 

(i)  From  acquiring  or  holding  stock  or  other  interest  in,  or  under- 
taking to  exercise  any  control  over,  or  making  loans  or  otherwise 
extending  credit  to,  any  other  corporation  carrying  forward  any 
part  of  the  business  of  the  trust,  except  as  hereinafter  provided. 

(2)  From  having  any  person  act  as  one  of  its  officers  or  directors 
who  is  also  an  officer  or  director  in  any  of  the  other  corporations 
carrying  forward  any  other  part  of  the  business  of  the  trust,  except 
as  hereinafter  provided. 

(3)  From  combining  in  any  way  with  any  other  corporation 
carrying  forward  any  part  of  the  business  of  the  trust,  either  in 
purchasing  raw  material  or  supplies  or  in  selling  manufactured 
products  or  otherwise,  or  having  any  joint  or  common  agents  or 
enterprises  in  connection  with  the  purchase  of  raw  materials  or 
supplies  or  the  sale  of  manufactured  products,  or  otherwise. 

(4)  From  making  any  agreement  or  arrangement  of  any  kind 
with  any  corporation  carrying  forward  any  part  of  the  business  of 
the  trust  under  which  trade  is  apportioned  in  respect  either  to 
customers  or  localities. 

(5)  From  doing  business  directly  or  indirectly  under  any  name 
other  than  its  own  corporate  name. 

(6)  From  holding  stock  in  or  being  otherwise  interested  in  any 
other  corporation,  except  as  hereinafter  provided. 

(7)  From  espionage  on  the  business  of  any  competitor  either 
through  bribery  of  any  agent  or  employee  of  such  competitor,  or 
obtaining  information  from  any  United  States  revenue  official. 

(8)  From  giving  away,  selling  at  or  below  the  cost  of  manufac- 
ture and  distribution,  any  of  its  products,  or  adopting  any  other 


Efficacy  of  Dissolution  495 

method  of  cutthroat  competition  for  the  purpose  of  destroying  or 
of  acquiring  the  business  or  trade  of  a  competitor. 

(9)  From  refusing  to  sell  to  any  jobber  any  brand  of  snuff  or 
cigarettes  or  smoking  or  chewing  tobacco  manufactured  by  it 
which  is  indispensable  in  the  particular  market.  It  should  also  be 
restrained  from  giving  any  rebates,  allowances,  or  other  special 
inducements  to  those  who  use  its  goods  exclusively  or  give  prefer- 
ence to  them  over  the  goods  of  competitors. 

(10)  No  corporation  carrying  forward  any  part  of  the  manufac- 
turing business  of  the  trust  should  be  allowed  to  hold  any  part  of 
the  stock  of  or  any  other  interest  in  any  concern  engaged  in  job- 
bing tobacco  products;  but  it  should  be  permitted,  except  as  above 
stated,  to  own  the  stock  of  another  corporation  organized  to  carry 
on  any  part  of  its  permissible  business,  provided  such  other  cor- 
poration shall  have  a  corporate  name,  and  the  business  is  done  under 
a  name,  substantially  identical  with  its  own. 

(B)  Each  of  the  29  individual  defendants,  and  also  the  other 
stockholders  among  whom  distribution  of  the  property  of  the  trust 
is  made,  should  be  restrained  from  doing,  or  aiding  in  the  doing, 
of  any  acts  which  the  corporations  are  to  be  prohibited  from  doing 
as  above  set  forth. 

(C)  Every  independent  or  other  person  interested  should  in  the 
event  of  any  alleged  violation  of  the  injunction  have  liberty  to 
apply  to  the  court  for  protection  and  such  action  as  may  appear  to 
be  appropriate. 

UNITED  CIGAR  STORES. 

Fifth.  The  plan  provides  for  leaving  intact  the  United  Cigar 
Stores  Co.  and  merely  distributing  among  the  common-stock 
holders  of  the  American  Tobacco  Co.  its  stock  holdings  in  the  United 
Cigar  Stores  Co.  No  plan  can  be  effective  to  restore  competition 
which  does  not  provide  for  dividing  the  businesses  and  property 
of  the  United  Cigar  Stores  Co.  among  many  separate  concerns 
owned  by  absolutely  distinct  groups  of  individuals.  These  busi- 
nesses should  be  divided,  preferably  among  at  least  10  separate  cor- 
porations, and  no  one  corporation  should  be  given  a  predominant 
power  in  any  locality. 

(a)  The  power  acquired  by  the  United  Cigars x  Stores  Co.  through 
the  illegal  operations  of  the  trust  is  so  great  that  its  continued 
existence  would  render  effective  competition  improbable,  even  if, 
1  Thus  in  original. — Ed. 


496  Industrial  Combinations  and  Trusts 

as  contended  above,  the  manufacturing  properties  were  divided 
into  separate  segments  owned  each  by  distinct  groups  of  individ- 
uals. The  distribution  of  the  United  Cigar  Stores  Co.'s  stock 
among  the  stockholders  of  the  American  Tobacco  Co.  would  in 
itself  create  a  bond  of  union  among  the  several  segments  sought  to 
be  kept  separate  and  distinct,  each  from  the  other.  In  considering 
the  disposition  to  be  made  of  the  United  Cigar  Stores  Co.,  the  court 
should  be  guided  by  the  actual  commercial  situation,  to  be  ascer- 
tained by  an  inquiry  into  the  actual  facts.  The  United  Cigar 
Stores  Co.,  developed  through  the  illegal  practices  of  the  trust, 
possesses  to-day  a  capital  and  a  peculiar  position  which  makes  it 
so  potent  in  the  tobacco  business  as  to  be  a  menace  alike  to  inde- 
pendent manufacturers  and  to  independent  retailers.  Its  division 
is  a  commercial  necessity. 

(b)  When  divided  each  segment  of  the  United  Cigar  Stores  Co. 
should  be  owned  by  a  different  group  of  individuals;  and  like  pro- 
vision should  be  made  as  in  the  case  of  the  segments  of  the  manu- 
facturing properties  of  the  trust — that  for  a  limited  period,  say, 
five  years,  none  of  the  original  stockholders  should  be  allowed  to 
acquire  an  interest  in  any  of  the  other  segments  into  which  the 
United  Cigar  Stores  Co.  is  divided. 

(c)  Specific  provision  should  also  be  made  to  prevent,  as  in  the 
case  of  the  manufacturing  companies,  any  combination  between  the 
different  corporations  formed  to  carry  forward  the  United  Cigar 
Stores  Co.  business.  They  should  among  other  things  be  expressly 
prevented  from  combining  in  any  way  in  purchasing  or  in  selling 
tobacco  products  or  in  purchasing  or  leasing  real  estate,  and 
specifically  from  issuing  interchangeable  coupons. 

II. 

Other  Important  Defects. 

In  addition  to  the  five  fundamental  objections  to  the  plan  set 
forth  above,  there  exist  other  important  objections,  among  which 
are  the  following: 

THE   BRITISH   AMERICAN   CO. 

First.  Under  the  plan  the  covenant  restricting  the  British  Amer- 
ican Tobacco  Co.  from  competing  within  the  United  States  is  to  be 
abrogated;  but  no  provision  is  made  for  terminating  the  practical 
monopoly  acquired  by  the  British  American  Co.  in  the  purchase 


Efficacy  of  Dissolution  497 

and  manufacture  within  the  United  States  for  export  of  certain 
kinds  of  tobacco  leaf  and  the  manufacture  of  cigarettes  within  the 
United  States  for  export. 

The  leaf-tobacco  business  of  the  British  American  Co.  should  be 
divided  among  four  concerns,  taking  over,  respectively,  the  busi- 
nesses heretofore  done  by  the  David  Dunlop  Co.,  T.  C.  Williams 
Co.,  Cameron  &  Cameron,  and  William  Cameron  &  Bros. 

The  export  cigarette  business  should  be  taken  by  two  companies, 
assuming,  respectively,  the  business  done  at  the  Richmond  and  the 
Durham  plants.  The  separate  concerns  so  created  should  be  sub- 
ject to  prohibitions  similar  to  those  suggested  above  for  the  other 
segments  of  the  trust,  and  the  provisions  should  be  made  specific- 
ally to  encourage  competition  between  the  cigarette  plants  now 
controlled  by  the  British  American  Co.  and  those  controlled  by  the 
American  Tobacco  Co. 

COMPETITION   IN   BUYING   TOBACCO. 

Second.  The  plan  fails  to  provide  adequately  for  preventing  a 
restraint  of  competition  in  the  purchase  of  leaf  tobacco  through 
some  combination  between  the  Imperial  Co.,  the  British  American 
Co.,  and  the  segments  into  which  the  American  Tobacco  Co.  may 
be  divided.  There  should  be  a  specific  prohibition  against  the 
British  companies  joining  with  each  other  or  with  any  of  the  seg- 
ments of  the  American  Tobacco  Co.  in  the  purchase  of  leaf  tobacco 
or  in  employing  any  common  agent  for  that  purpose. 

THE   CIGAR   BUSINESS. 

Third.  Under  the  plan  the  American  Tobacco  Co.  is  to  retain  in 
its  treasury  the  stock  of  the  American  Cigar  Co.  now  held  by  it. 
The  American  Cigar  Co.  should  be  separated  absolutely  from  every 
other  corporation  which  carries  forward  any  part  of  the  manufac- 
turing business  of  the  trust  in  other  tobacco  products.  All  the  Amer- 
ican Cigar  Co.  stock  held  by  the  trust  should  be  transferred  to 
some  group  of  individuals  entirely  distinct  from  those  who  hold  the 
stock  in  the  corporations  which  take  over  the  smoking-tobacco, 
plug-tobacco,  snuff,  and  cigarette  business  of  the  trust. 

Furthermore  the  manufacturing  business  of  the  American  Cigar 
Co.  should  be  divided  among  at  least  four  separate  corporations, 
each  owned  by  a  distinct  group  of  stockholders;  and  each  of  these 
corporations  should  be  subject  to  prohibitions  substantially  sim- 


498  Industrial  Combinations  and  Trusts 

ilar  to  those  above  set  forth  in  respect  to  the  other  corporations 
carrying  forward  parts  of  the  business  of  the  trust. 

Leave  is  respectfully  reserved  to  submit  additional  objections 
to  the  plan,  as  well  as  argument  in  support  of  all  objections  in  ac- 
cordance with  said  order  entered  October  18,  191 1. 

Louis  D.  Brandeis, 
Felix  H.  Levy, 
Counsel  for  Remonstrants. 
New  York,  October  25,  ign. 


Exhibit  7 

argument  of  felix  h.  levy  in  support  of  the  objections  filed 
herein  by  the  national  cigar  leaf  tobacco  association,  the 
cigar  manufacturers'  association  of  america,  and  the  in- 
dependent tobacco  salesmen's  association  to  the  plan  of 
disintegration  filed  herein  by  the  american  tobacco  co. 
and  others,  defendants  l 

I.  The  plan  submitted  by  the  tobacco  combination  does  not,  in  any 
substantial  sense,  comply  with  the  requirements  of  the  opinion  of 
the  United  States  Supreme  Court  or  of  the  decree  rendered  herein. 

(a)  At  the  outset  it  will  be  useful  for  a  clear  understanding  of  the 
requirements  of  the  opinion  of  the  Supreme  Court  to  point  out  a  few 
of  the  salient  features  of  that  opinion  as  indicating  the  character  of 
dissolution  contemplated  by  that  court. 

It  is  a  significant  fact  that  the  court  deemed  it  unnecessary  to 
take  into  consideration  any  of  the  numerous  facts  in  the  record  which 
were  disputed  by  the  defendants.    The  court  said  (p.  155): 

"*  *  *  in  our  opinion  the  case  can  be  disposed  of  by  consid- 
ering only  those  facts  which  are  indisputable  and  by  applying  to  the 
inferences  properly  deducible  from  such  facts  the  meaning  and  effect 
of  the  law  as  expounded  in  accordance  with  the  previous  decisions 
of  this  court," 
and  again  (p.  157), 

it*    *    *    we  propose  only  to  deal  with  facts  which  are  not  in  con- 
troversy." 

Despite  the  fact  that  the  court  limited  itself  to  the  consideration  of 

1  Hearing  before  the  Committee  on  Interstate  Commerce,  United  States 
Senate,  62nd  Congress,  2nd  Sess.,  1011-1912,  pp.  340-50. 


Efficacy  of  Dissolution  499 

the  undisputed  facts  only  the  court  gave  judgment  of  dissolution  and 
disintegration  of  a  most  drastic  character. 

(b)  The  court  recognized  the  fact  that  a  substantial  control  of  the 
combination  was  exercised  by  a  very  small  number  of  its  stockholders. 
At  page  174  the  court  said: 

"Through  the  method  of  distribution  of  the  stock  of  the  new  com- 
pany, in  exchange  for  shares  in  the  old  American  and  in  the  Con- 
tinental Co.,  it  resulted  that  the  same  six  men  in  control  of  the 
combination  through  the  Consolidated  Tobacco  Co.  continued  that 
control  by  ownership  of  stock  in  the  merged  or  new  American  To- 
bacco Co.  *  *  *  The  record  indisputably  discloses  that  after  this 
merger  the  same  methods  which  were  used  from  the  beginning  con- 
tinued to  be  employed." 

And  it  also  recognized  the  necessity  of  a  complete  divesting  of  stock 
ownership  by  one  part  of  the  combination  in  other  parts  of  the  com- 
bination, as  is  thus  shown  (p.  176): 

"Thus,  even  if  the  ownership  of  stock  by  the  American  Tobacco 
Co.  in  the  accessory  and  subsidiary  companies  and  the  ownership  of 
stock  in  any  of  those  companies  among  themselves  were  held,  as 
was  decided  in  United  States  against  Standard  Oil  Co.,  to  be  a  viola- 
tion of  the  act,  and  all  relations  resulting  from  such  stock  ownership 
were  therefore  set  aside,  the  question  would  yet  remain  whether  the 
principal  defendant,  the  American  Tobacco  Co.,  and  the  five  acces- 
sory defendants,  even  when  divested  of  their  stock  ownership  in  other 
corporations,  by  virtue  of  the  power  which  they  would  continue  to 
possess,  even  although  thus  stripped,  would  amount  to  a  violation  of 
both  the  first  and  second  sections  of  the  act.  *  *  *  Still  further, 
the  question  would  yet  remain  whether  particular  corporations  which, 
when  bereft  of  the  power  which  they  possessed,  as  resulting  from 
stock  ownership,  although  they  were  not  inherently  possessed  of  a 
sufficient  residuum  of  power  to  cause  them  to  be  in  and  of  themselves 
either  a  restraint  of  trade  or  a  monopolization  or  an  attempt  to 
monopolize,  should  nevertheless  be  restrained  because  of  their  in- 
timate connection  and  association  with  other  corporations  found  to 
be  within  the  prohibitions  of  the  act." 


(e)  The  court  clearly  recognized  the  necessity  of  a  separation  of 
stock  control,  as  is  thus  shown  (p.  185): 

"Looking  at  the  situation  as  we  have  hitherto  pointed  it  out,  it  in- 


500  Industrial  Combinations  and  Trusts 

volves  difficulties  in  the  application  of  remedies  greater  than  have 
been  presented  by  any  case  involving  the  antitrust  act  which  has 
been  hitherto  considered  by  this  court:  First,  because  in  this  case  it 
is  obvious  that  a  mere  decree  forbidding  stock  ownership  by  one  part 
of  the  combination  in  another  part  or  entity  thereof  would  afford  no 
adequate  measure  of  relief,  since  different  ingredients  of  the  combina- 
tion would  remain  unaffected,  and  by  the  very  nature  and  character 
of  their  organization  would  be  able  to  continue  the  wrongful  situation, 
which  it  is  our  duty  to  destroy.  *  *  *  Third,  because  the 
methods  devised  by  which  the  various  essential  elements  to  the  suc- 
cessful operation  of  the  tobacco  business  from  any  particular  aspect 
have  been  so  separated  under  various  subordinate  combinations,  yet 
so  unified  by  way  of  the  control  worked  out  by  the  scheme  here 
condemned,  are  so  involved  that  any  specific  form  or  relief 
which  we  might  now  order  in  substance  and  effect  might  operate 
really  to  injure  the  public  and,  it  may  be,  to  perpetuate  the 
wrong." 

It  is  thus  made  obvious  that  one  of  the  principal  features  com- 
prised in  the  objections  filed  by  the  remonstrants — that  which  ob- 
jects to  stock  ownership  by  the  stockholders  of  any  one  of  the  seg- 
ments into  which  the  combination  shall  be  divided  in  any  of  the  other 
segments — was  contemplated  by  the  court,  and,  apparently,  the  only 
objection  thereto  was  that  such  prohibition  would  not  go  far  enough. 
To  emphasize  this,  we  repeat  the  language  of  the  court: 

"  *  *  *  In  this  case  it  is  obvious  that  a  mere  decree  forbidding 
stock  ownership  by  one  part  of  the  combination  in  another  part,  or 
entity  thereof,  would  afford  no  adequate  measure  of  relief." 

There  is  here  no  suggestion  of  the  illegality  of  such  a  prohibition. 
The  court  says  only  that  it  will  not  go  far  enough. 

The  danger  of  a  renewal  of  an  unified  control  through  such  stock 
ownership  is  clearly  apprehended  by  the  court  as  shown  by  the  words 
used  above,  which  we  here  again  quote  (p.  186): 

"*  *  *  Because  the  methods  devised  by  which  the  various  es- 
sential elements  to  the  successful  operation  of  the  tobacco  business 
from  any  particular  aspect  have  been  so  separated  under  various 
subordinate  combinations,  yet  so  unified  by  way  of  the  control 
worked  out  by  the  scheme  here  condemned,"  etc. 

(/)  It  seems  obvious  that  the  court  had  in  mind  the  probability 
that  a  receivership  or  an  injunction  against  the  movement  in  inter- 
state commerce  of  the  products  of  the  combination  would  be  neces- 
sary on  account  of  the  complexity  of  the  situation  created  by  the 


UntoersHy  of  Redlands  Libi 
Efficacy  of  Dissolution  501 

conspirators  who  controlled  the  combination.  The  court  makes 
clear  the  possible  necessity  of  such  a  procedure,  and  its  unwillingness 
to  resort  thereto  forthwith,  without  first  giving  the  controllers  of  the 
combination  an  opportunity  to  formulate  and  present  to  this  court  a 
plan  of  dissolution  and  disintegration  which  would  honestly  conform 
with  the  requirements  of  the  statute.    The  court  said  (p.  187): 

"But,  having  regard  to  the  principles  which  we  have  said  must 
control  our  action,  we  do  not  think  we  can  now  direct  the  immediate 
application  of  either  of  these  remedies.  We  so  consider  as  to  the  first 
because,  in  view  of  the  extent  of  the  combination,  the  vast  field  which 
it  covers,  the  all-embracing  character  of  its  activities  concerning  to- 
bacco and  its  products,  to  at  once  stay  the  movement  in  interstate 
commerce  of  the  products  which  the  combination  or  its  co-operating 
forces  produce  or  control  might  inflict  infinite  injury  upon  the  pub- 
lic," etc.  *  *  *  "  The  second  because  the  extensive  power  which 
would  result  from  at  once  resorting  to  a  receivership  might  not  only 
do  grievous  injury  to  the  public,"  etc. 

It  thus  appears  that  instead  of  resorting  forthwith  to  either  of  these 
drastic  remedies,  the  court  gave  to  the  defendants  the  opportunity 
of  working  out  some  plan  of  dissolution  and  disintegration  which 
would  conform  to  the  requirements  of  the  decree  and  adequately 
meet  the  situation;  and  failing  so  to  do,  resort  to  one  or  the  other  or 
both  of  these  remedies  would  become  necessary.  The  insistence  upon 
a  diversity  of  stock  ownership  is  based  not  upon  any  claim  of  the 
right  of  this  court  to  enforce  such  condition  upon  the  stockholders 
against  their  will,  but  is  based  upon  the  contention  that  unless  the 
stockholders  of  their  own  free  will  and  accord  present  to  the  court, 
as  a  part  of  their  plan  of  dissolution  and  disintegration,  a  provision 
preventing  mutuality  of  stock  ownership,  the  defendants  will  not 
have  met  the  requirements  of  the  opportunity  thus  given  to  them  by 
the  Supreme  Court.  In  other  words,  the  Supreme  Court  has,  if  we 
may  be  permitted  to  paraphrase  its  language,  said  in  effect  to  these 
defendants : 

"We  hesitate  to  appoint  forthwith  a  receiver  and  to  issue  an  in- 
junction against  interstate  traffic  in  your  products  because  of  the 
injury  that  will  thereby  be  occasioned  to  the  public.  We  therefore 
give  you  an  opportunity  of  working  out  and  presenting  to  the  circuit 
court  a  plan  of  dissolution  and  disintegration  which  will  honestly 
re-create  conditions  of  free  and  unrestricted  competition.  If  you  are 
unable  or  unwilling  to  do  this,  there  will  be  no  alternative  open  except 
the  appointment  of  a  receiver  or  the  issuance  of  such  an  injunction. 


5<D2  Industrial  Combinations  and  Trusts 

It  will  therefore  be  necessary  for  you  to  devise  a  plan  to  which  your 
security  holders  will  of  their  own  accord  consent  whereby  the  true 
intent  and  purpose  of  our  decree  will  be  carried  out.  If  such  a  plan 
shall  necessitate  your  security  holders  placing  themselves  under  a 
prohibition  against  mutual  or  joint-stock  ownership  of  the  various 
segments  into  which  your  combination  shall  be  divided,  then  that 
must  be  done.  While  it  may  be  that  a  court  can  not  compel  you  to 
do  this,  nevertheless  unless  you  consent,  no  effective  restoration  of 
real  competitive  conditions  can  be  brought  about  and  accordingly  it 
would  become  necessary  for  the  court  to  appoint  a  receiver  or  to  issue 
an  injunction." 

II.  The  court  has  power  to  enjoin  the  purchase,  directly  or  indirectly, 
by  the  29  individual  defendants  and  their  confederates,  of  the  stock 
of  the  constituent  companies. 

We  protest  against  any  method  of  distribution  by  which  the  stock 
of  the  constituent  companies  will  be  placed  in  the  hands  of  the 
common-stock  holders  of  the  American  Tobacco  Co.  The  American 
Tobacco  Co.  must,  it  is  true,  dispose  of  its  holdings  in  the  shares  of 
the  constituent  companies,  but  it  should  not  be  allowed  to  distribute 
those  shares  among  its  own  common-stock  holders.  On  the  contrary, 
an  injunction  should  issue  restraining  the  common-stock  holders  of 
the  American  Tobacco  Co.  from  acquiring  those  shares.  Such  an 
injunction  involves  no  violation  of  any  legal  principle.  It  merely 
enjoins  the  perpetuation  of  a  criminal  conspiracy  under  another 
form. 

An  analysis  of  the  situation  must,  we  think,  sustain  the  correctness 
of  this  view.  These  29  individual  defendants  combined  with  the 
American  Tobacco  Co.,  or  combined  with  each  other,  by  and  through 
the  corporate  form  of  the  American  Tobacco  Co.,  to  monopolize 
trade  and  suppress  competition  by  centralizing  under  one  control 
the  business  of  previous  diverse  units.  To  effectuate  that  end  they 
adopted  the  plan  of  putting  the  stock  of  the  units  into  the  ownership 
of  the  dominant  corporation.  They  might  have  adopted  other 
methods,  and  if  the  end  which  they  had  in  view  had  been  the  same, 
the  illegality  would  have  been  in  no  way  cured.  In  other  words,  if 
these  29  defendants  conspired  to  monopolize  trade,  and  adopted  the 
expedient  of  putting  the  ownership  of  the  stock  of  the  constituent 
units  in  their  own  names,  they  would  still  have  been  parties  to  a 
criminal  conspiracy.    Acting  individually,  but  not  in  concert,  each 


Efficacy  of  Dissolution  503 

one  of  them,  it  may  be,  might  have  acquired  whatever  shares  he 
pleased.  When,  however,  by  concerted  action,  they  set  about  to 
monopolize  a  great  industry,  they  would  not  have  escaped  the  pen- 
alties of  the  law  if  they  had  put  the  title  to  the  shares  in  their  in- 
dividual names.  The  purpose  and  intent  of  using  the  ownership  ac- 
quired through  this  joint  action  in  order  to  crush  competition  and  to 
establish  monopoly,  would  have  vitiated  their  acts. 

The  Supreme  Court  of  the  United  States  said  in  Swift  &  Co.  v. 
U.S.  (196 U.S., 375): 

"Even  if  the  separate  elements  of  such  a  scheme  are  lawful,  when 
they  are  bound  together  by  a  common  intent  as  parts  of  an  unlawful 
scheme  to  monopolize  interstate  commerce,  the  plan  may  make  the 
parts  unlawful." 

The  plan  now  proposed  attempts,  therefore,  to  perpetuate  a  crim- 
inal conspiracy.  It  seeks  to  cure  a  great  evil  and  a  great  wrong  by 
substituting  another.  The  29  individual  defendants,  convicted  of 
conspiracy,  are  making  reparation,  not  by  yielding  up  their  collective 
control,  but  by  taking  in  their  own  names  the  title  which  for  conven- 
ience they  had  vested  in  the  company.  They  would  have  violated 
the  law  if,  with  concert  of  action,  they  had  taken  the  title  in  their 
own  names  when  the  combination  was  first  formed.  They  surely  do 
not  bring  themselves  within  the  law  by  doing  something  to-day 
which,  if  they  had  done  at  the  outset,  would  have  been  denounced  as 
a  crime. 

It  is  said,  however,  in  defense  of  the  plan,  that  the  control  will  be 
diluted  because  voting  rights  are  now  to  be  given  to  the  preferred- 
stock  holders.  We  have  no  list  of  the  present  preferred-stock  holders. 
We  have  no  doubt  that  if  the  list  is  scrutinized,  and  if  the  individual 
defendants  are  compelled  to  submit  to  an  examination  under  oath 
with  reference  thereto,  it  will  be  found  that  the  preferred  stock  is 
held  in  large  part  by  the  conspirators  and  by  their  agents  and  rela- 
tives. We  urge  that  before  the  court  shall  accept  the  word  of  an  ad- 
judged wrongdoer  that  it  has  reformed  itself  altogether,  there  be  a 
rigid  investigation,  under  the  sanction  of  an  oath,  of  these  professions 
of  reformed  innocence. 

No  plan  should  be  approved  unless  the  common-stock  holders  are 
prohibited  from  obtaining  or  retaining  control.  Control,  moreover, 
may  be  exercised  by  something  less  than  a  majority.  The  cohesive 
power  of  large  stockholders  representing  30  or  40  per  cent  may  out- 
match the  scattered  forces  of  unorganized  individuals.  The  percent- 
ages of  the  voting  stock  held  by  the  individual  defendants  in  the 


504  Industrial  Combinations  and  Trusts 

14  corporations  into  which  they  propose  to  divide  the  existing  com- 
bination are  as  follows: 

Per  cent. 

American  Tobacco    Co. 35-i6 

Liggett  &  Myers  Co. 40.76 

P.  Lorillard  Co. 40.76 

American  Snuff  Co. 38-65 

Geo.  W.  Helme  Co. 28.49 

Weyman  &  Burton  Co. 28.49 

Conley  Foil  Co. 33-88 

Johnston  Tin  Foil  Co. 33-73 

MacAndrews  &  Forbes  Co. 39-77 

J.  S.  Young  Co. 43.87 

R.  J.  Reynolds  Tobacco  Co. 37-53 

United  Cigar  Stores  Co. 37.65 

British- American  Tobacco  Co. 34-46 

Porto  Rican-American  Tobacco  Co. 45.3 1 

It  is  apparent  from  these  figures  that  the  individual  defendants  will, 
in  the  absence  of  united  action  by  the  majority  of  the  stockholders 
of  any  of  the  companies,  control  each  and  all  of  the  said  companies. 
Especially  will  this  be  so  when  it  is  borne  in  mind  that  the  individual 
defendants  will  start  out  in  actual  control  of  each  and  every  one  of 
such  corporations,  by  reason  of  the  fact  that  they  will,  upon  the  or- 
ganization of  these  corporations,  undoubtedly  control  the  nomina- 
tion and  election  of  the  directors  and  officers  and  through  them  of 
each  and  every  employee  of  the  said  corporations. 

Thus  to  restrain  the  individual  defendants  and  those  who,  while 
not  joined  as  defendants  are  so  related  to  them  that  they  must  have 
been  animated,  and  will  be  animated,  by  a  common  purpose  is  not  an 
arbitrary  judicial  fiat.  It  is  not  to  cast  aside  settled  legal  principles 
and  single  out  special  individuals  to  bear  some  special  burden;  the 
underlying  principle  is  this:  These  men  have  combined  and  conspired 
in  violation  of  law,  and  the  injunction  restraining  them  from  acquir- 
ing the  shares  merely  restrains  them  from  giving  effect  to  and  per- 
petuating the  same  combination  and  conspiracy  under  another  form. 
They  might  have  been  restrained  from  these  acts  when  the  monopoly 
was  first  planned.  A  long  career  of  oppression  and  the  exercise  of 
monopolistic  power  has  given  them  no  broader  license. 


Efficacy  of  Dissolution  505 

VII.  The  proposed  plan  is  significant  in  respect  of  the  concerns  which 
are  not  to  be  parts  of  the  three  great  corporations,  namely,  the 
American  Tobacco  Co.  (new),  Liggett  &  Myers  Co.,  and  the  P. 
Lorillard  Co. 

(a)  The  American  Tobacco  Co.  is  to  divest  itself  of  its  interest  in 
the  two  tin-foil  companies,  but  that  interest  (which  is  60  per  cent)  is 
to  be  distributed  to  its  common-stock  holders  as  a  dividend. 

(b)  The  American  Tobacco  Co.  is  to  divest  itself  of  its  interest  in 
the  R.  J.  Reynolds  Tobacco  Co.  (more  than  two- thirds  interest),  but 
that  interest  is  to  be  distributed  to  its  common-stock  holders  as  a 
dividend.  This  company  is  a  very  large  combination  in  itself,  con- 
trolling several  branches  and  subcompanies,  and  has  a  practical 
monopoly  of  the  flat-plug  business  of  the  South. 

(c)  It  will  also  divest  itself  of  its  interest  in  the  American  Snuff 
Co.  (about  43  per  cent),  but  that  interest  is  to  be  distributed  to  its 
common-stock  holders  as  a  dividend. 

(d)  It  will  also  divest  itself  of  its  interest  (about  75  per  cent)  in  the 
MacAndrews  &  Forbes  Co.,  but  this  interest  is  to  be  distributed  to  its 
common-stock  holders  as  a  dividend. 

(e)  It  will  also  divest  itself  of  its  interest  (about  two-thirds)  in  the 
British- American  Tobacco  Co.,  but  that  interest  will  be  distributed 
to  its  common-stock  holders  as  a  dividend. 

(/)  It  will  also  divest  itself  of  its  interest  in  the  United  Cigar 
Stores  Co.  (about  two-thirds),  but  that  interest  will  be  distributed  to 
its  common-stock  holders  as  a  dividend. 

It  will  therefore  result  that  each  of  these  six  constituent  parts  of 
the  present  combination  will  continue  to  be  controlled  by  the  same 
"small  number  of  individuals  who  own  a  majority  of  the  common 
stock"  of  the  American  Tobacco  Co.  (See  opinion  of  the  United 
States  Supreme  Court,  p.  175.) 

The  viciousness  of  such  an  arrangement  is  made  manifest  more 
strikingly  in  the  case  of  the  United  Cigar  Stores  Co.  than  in  the 
case  of  the  other  five  companies  thus  sought  to  be  separated.  The 
United  Cigar  Stores  Co.  has  been  the  most  powerful  agency  of 
the  combination  in  obtaining  the  control  of  the  tobacco  industry. 
Through  the  hundreds  of  stores  which  that  company  operates, 
and  by  virtue  of  the  special  trade  advantages  given  to  it  by  its 
owner,  the  American  Tobacco  Co.,  and  by  the  exercise  of  the 
most  ruthless  and  cruel  practices  in  driving  out  retail  opposition  and 
obstructing  the  avenues  of  distribution  on  the  part  of  independent 


506  Industrial  Combinations  and  Trusts 

manufacturers,  this  company  has  proven  the  most  effectual  of  all 
the  barriers  to  the  entry  of  others  into  the  tobacco  trade.  If  the 
mild  expedient  of  merely  separating  this  company  from  the  com- 
bination but  of  leaving  its  control  in  the  hands  of  the  same  men  who 
have  heretofore  controlled  the  combination,  if  the  rose-water 
remedy  of  gently  setting  aside  this  vast  agency  of  destruction  from 
its  former  control  by  the  combination  and  placing  it  in  the  hands 
of  the  same  men  who  control  that  combination,  is  to  be  adopted, 
it  is  no  exaggeration  to  say  that,  in  this  respect  at  least,  the  decree 
of  the  Supreme  Court  of  the  United  States  might  as  well  have  been 
a  blank  piece  of  paper. 

VIII.  It  is  obvious  that  the  real  purpose  of  the  defendants  in  the 
preparation  of  their  plan  is  to  retain  to  themselves  the  "monop- 
oly" value  which  the  combination  has  acquired. 

We  repeat  the  statement  quoted  above  from  the  opinion  of  the 
Supreme  Court  (p.  182): 

"By  the  ever-present  manifestation  which  is  exhibited  of  a 
conscious  wrongdoing  by  the  form  in  which  the  various  transactions 
were  embodied  from  the  beginning,  ever  changing  but  ever  in 
substance  the  same.  Now  the  organization  of  a  new  company, 
now  the  control  exerted  by  the  taking  of  stock  in  one  or  another 
or  in  several,  so  as  to  obscure  the  result  actually  attained,  never- 
theless uniform  in  their  manifestations  of  the  purpose  to  restrain 
others  and  to  monopolize  and  retain  power  in  the  hands  of  the 
few  who,  it  would  seem,  from  the  beginning  contemplated  the 
mastery  of  the  trade  which  practically  followed." 

The  plan  now  proposed  comes  squarely  within  this  description. 
It  leaves  unimpaired  the  opportunity  for  the  exercise  of  all  the 
manifold  devices  to  which  the  managers  of  this  combination  have 
heretofore  resorted  for  the  purpose  of  retaining  "power  in  the  hands 
of  the  few  who,  it  would  seem,  from  the  beginning,  contemplated 
the  mastery  of  the  trade  which  practically  followed. " 

We  submit  that  there  is  every  probability  that  if  these  individual 
defendants  be  allowed  to  retain  control  of  the  constituent  companies 
(as  well  as  those  named  above  as  of  the  three  or  four  great  corpora- 
tions into  which  they  propose  to  divide  the  rest  of  the  business  of 
the  combination),  they  will  again  resort  to  the  same  devices  and 
practices  as  they  have  in  the  past  for  the  purpose  of  using  such  con- 
trol to  retain  and  extend  their  mastery  and  dominion  over  the 
entire  tobacco  industry. 


Efficacy  of  Dissolution  507 

The  enormous  value  which  has  been  acquired  by  the  combina- 
tion through  its  monopolistic  practices  and  the  great  inducement 
thereby  held  out  to  these  defendants  in  their  effort  to  retain  the 
same  is  shown  in  Exhibit  C  (p.  41)  of  their  proposed  plan.  This 
exhibit  shows  that  as  to  the  proposed  Liggett  &  Myers  Co.  the  value 
of  the  tangible  assets  is  stated  as  about  $30,000,000  and  the  value 
of  the  "trade-marks  and  brands"  as  about  $36,000,000.  The 
corresponding  figures  as  to  the  proposed  P.  Lorillard  Co.  are,  as 
to  the  tangible  assets,  about  $28,000,000  and  as  to  "trade-marks 
and  brands"  about  $19,000,000.  Although  we  have  been  denied 
access  to  the  data  upon  which  these  figures  are  based,  we  feel 
justified  in  the  assumption  that  a  very  large  part  of  the  great 
value  assigned  to  "trade-marks  and  brands"  is  represented  by 
"good-will  value,"  which  must  in  turn  have  as  a  large  element 
the  "  monopoly  "  or  "  merger  "  value.  This  fact  is  further  shown  by 
a  scrutiny  of  the  said  exhibit,  from  which  it  will  appear  that  as  to 
each  of  the  two  new  companies  the  earnings  over  and  above  the 
amounts  necessary  to  pay  interest  on  all  the  bonds  and  the  dividends 
on  the  preferred  stock,  and  which  wTill  be  available  as  dividends 
on  the  common  stock,  will  be  over  20  per  cent  of  the  amount  of  the 
common  stock.  The  inducement  plainly  exists  for  these  defendants 
to  retain  the  control  of  all  these  companies.  If  this  control  is 
exercised  in  the  same  way  as  they  exercised  their  control  of  the 
combination  in  the  past,  it  can  only  result  in  a  retention  and  exten- 
sion of  this  "monopoly"  value. 

Exhibit  8 

claim  of  the  independents  in  regard  to  the  distribution  of 
tobacco  and  brands  among  the  tobacco  companies  after 

DISSOLUTION  l 

That  the  division  of  the  American  Tobacco  Co.  properties  as 
between  the  American  Tobacco  Co.,  Liggett  &  Myers  Tobacco  Co., 
the  P.  Lorillard  Co.,  and  R.  J.  Reynolds  Tobacco  Co.,  is  a  con- 
tinuation of  the  illegal  combination,  is  discussed  in  Part  II  above. 
That  the  percentages  of  the  whole  business  of  the  country  in  the 
several  branches  of  the  tobacco  trade  alloted  to  each  of  these 

1  Hearings  before  the  Committee  on  Interstate  Commerce  on  the  Control  of 
Corporations,  Persons  and  Individuals  engaged  in  Interstate  Commerce, 
United  States  Senate,  62nd  Congress,  2nd  Sess.,  1911-1912,  pp.  325-329.  Cf. 
Exhibits  3  and  4  above. 


508  Industrial  Combinations  and  Trusts 

four  companies  is  such  as  to  preclude  the  possibility  of  fair  com- 
petition as  between  them  and  the  existing  independents  is  set  forth 
in  our  objections  filed  October  25  (pp.  4-10).  A  detailed  examina- 
tion of  the  trade  conditions  will  disclose,  in  addition,  that  the 
brands  and  business  are  so  distributed  under  the  plan  as  to  prevent, 
in  large  measure,  competition  among  the  four  companies. 

The  facts  necessary  to  bring  this  matter  fully  before  the  court 
do  not  appear  in  the  present  record.  They  can  not  be  adequately 
presented  without  the  examination  of  witnesses  familiar  with 
trade  conditions,  and  also  without  an  opportunity  of  submitting 
to  the  court  certain  data  in  regard  to  the  defendants'  business 
included  among  the  papers  to  which  these  remonstrants  sought 
access  by  their  petition  filed  October  18,  191 1;  and  access  to  which 
was  denied  by  the  court.  But  the  following  facts  not  disclosed  by 
the  defendants  in  their  petition  filed  October  16,  191 1,  will,  we 
believe,  suffice  to  show  the  court  that  the  proposed  division  of 
the  trust's  properties  would  leave  each  of  the  four  companies  so 
dominant  in  important  departments  and  markets  that,  through 
them,  the  existing  monopoly  would  be  practically  continued. 

First. — The  leaf-tobacco  trade. 

Defendants'  plan,  Exhibit  E,  sets  out  the  average  production 
of  five  leading  types  of  tobacco,  together  with  the  estimated  pur- 
chases of  each  type  by  the  American  Tobacco  Co.,  Liggett  &  Myers 
Co.,  P.  Lorillard  Co.,  R.  J.  Reynolds  Tobacco  Co.,  and  the  British- 
American  Tobacco  Co.  From  the  face  of  those  figures  it  would 
appear  as  if  the  plan  had  provided  for  reasonable  competition  as 
between  these  companies  for  the  various  types  of  tobacco.  Facts 
not  disclosed  by  the  plan  will  show  a  very  different  result. 

1.  Burley  tobacco. — Defendants'  plan,  Exhibit  E,  sets  forth  that 
of  the  total  average  crop  of  burley  (200,000,000  pounds)  the  Ameri- 
can Tobacco  Co.  would  purchase  41,969,955;  Liggett  &  Myers 
Tobacco  Co.,  69,163,946;  P.  Lorillard  Co.,  24,074,643;  and  R.  J. 
Reynolds  Tobacco  Co.,  5,000,000  pounds,  as  if  these  four  companies 
would  be  competitors  for  this  aggregate  of  130,000,000  pounds. 
As  a  matter  of  fact,  the  burley  type  of  tobacco  comprises  40  different 
grades,  of  which  the  most  important  are  the  following:  Medium  red 
burley  leaf,  of  which  the  average  crop  is  about  60,000,000  pounds; 
common  red  burley,  leaf  and  tips,  of  which  the  average  crop  is  about 
40,000,000  pounds;  trashes  (of  various  qualities),  of  which  the  pro- 
duction is  about  50,000,000  pounds;  fine  bright  leaf  and  fine  white 


Efficacy  of  Dissolution  509 

burlcy,  of  which  the  production  is  from  10,000,000  to  15,000,000 
pounds.  These  various  grades  vary  in  quality  and  quantity  in  al- 
most every  crop,  according  to  the  season.  The  values  of  the  said 
classes  in  a  single  year  are  widely  different.  The  average  price  per 
pound  of  the  medium  red  burley  would  be,  perhaps,  12  to  15  cents; 
of  common  red,  7  to  10  cents;  of  trashes,  7  to  12^  cents;  of  bright 
leaf  and  fine  white  burley,  16  to  20  cents. 

The  distribution  of  the  brands  of  plug  and  of  smoking  tobacco 
under  the  defendants'  plan  is  such  that  the  American  Tobacco  Co., 
the  Liggett  &  Myers  Tobacco  Co.,  the  P.  Lorillard  Co.,  and  the 
R.  J.  Reynolds  Tobacco  Co.  would  not,  to  any  large  extent,  be 
competitors  for  burley  tobacco,  but  would  each  be  practically  a 
dominating  purchaser  of  different  grades  of  burley;  for  instance: 

(a)  Medium  red  leaf  burley:  The  Liggett  &  Myers  Tobacco  Co. 
would  control  the  medium  red  leaf  burley  market  as  maker  of  the 
"Star"  and  "Horsehoe"  brands  of  chewing  tobacco,  by  far  the 
leading  chewing  tobacco  brands  in  the  country,  for  they  would 
be  the  principal  purchasers  of  medium  red  leaf  burley.  Neither 
the  American  Tobacco  Co.  nor  the  P.  Lorillard  Co.  nor  the  R.  J. 
Reynolds  Tobacco  Co.  requires  any  appreciable  quantity  of  this 
grade  of  burley. 

(b)  Common  red  burley:  The  American  Tobacco  Co.  would 
control  the  common  red  burley  market  as  maker  of  the  following 
brands  of  plug  chewing  tobacco:  "American  Navy,"  "Square 
Deal,"  "Standard  Navy,"  "Corker,"  and  "Town  Talk."  Neither 
the  Liggett  &  Myers  Tobacco  Co.  nor  the  P.  Lorillard  Co.  or  J  the 
R.  J.  Reynolds  Tobacco  Co.  requires  any  appreciable  quantity  of 
this  common  red  burley  for  the  brands  assigned  to  them  in  the  plan. 
Therefore  the  American  Tobacco  Co.  would  control  the  common 
red  burley  market. 

(c)  Burley  trashes:  The  P.  Lorillard  Co.  would  dominate  the 
market  for  burley  trashes  as  the  maker  of  the  "Union  Leader," 
"  Sensation,"  and  "  Just  Suits"  brands  of  smoking  tobacco.  Neither 
the  American  Tobacco  Co.,  Liggett  &  Myers  Tobacco  Co.,  or  l 
the  R.  J.  Reynolds  Tobacco  Co.  requires  any  appreciable  quantity 
of  that  grade  of  burley. 

(d)  Fine  white  burley:  The  American  Tobacco  Co.,  as  maker  of 
the  "Lucky  Strike,"  "Tuxedo,"  and  "Old  English"  brands  of 
smoking  tobacco,  would  require  the  greater  part  of  the  fine  white 
burley.     Liggett  &  Myers  Tobacco  Co.  would  require  a  small 

1  Thus  in  original. — Ed. 


510  Industrial  Combinations  and  Trusts 

quantity  of  this  grade  for  their  "Velvet"  brand  of  smoking  tobacco, 
and  the  R.  J.  Reynolds  Tobacco  Co.  a  small  quantity  for  their 
"Prince  Albert"  brand  of  smoking  tobacco. 

2.  Virginia  and  North  Carolina  bright  tobacco. — Defendant's  plan, 
Exhibit  E,  states  the  total  average  crop  of  Virginia  and  North 
Carolina  bright  tobacco  to  be  240,000,000  pounds,  of  which  the 
American  Tobacco  Co.  would  require  51,295,870;  the  Liggett  & 
Myers  Tobacco  Co.,  27,755,411;  the  P.  Lorillard  Co.,  2,556,007; 
the  R.  J.  Reynolds  Tobacco  Co.,  25,000,000;  and  the  British- 
American  Tobacco  Co.,  40,000,000  pounds. 

On  the  face  of  the  exhibit  it  would  appear  that  four  important 
competitors  for  this  type  of  tobacco  were  provided  by  the  trust's 
plan.  The  plan  fails,  however,  to  disclose  that  there  are  numerous 
grades  of  the  type  of  tobacco  known  as  Virginia  and  North  Carolina 
bright,  of  which,  perhaps,  12  important  grades  are  required  for 
different  classes  of  tobacco  products.  Consequently  there  might 
be  a  number  of  large  and  active  buyers  for  Virginia  and  North 
Carolina  tobacco  in  the  same  market  and  yet  no  one  compete 
with  any  of  the  others. 

(a)  High-grade  smoker:  Thus,  under  the  plan,  the  American 
Tobacco  Co.,  for  its  brand  of  "Bull  Durham,"  the  largest  selling 
brand  of  smoking  tobacco  in  the  country,  would  require  great 
quantities  of  the  grade  known  as  high-grade  smoker.  Neither  the 
Liggett  &  Myers  Tobacco  Co.  nor  the  P.  Lorillard  Co.  nor  the 
British- American  Co.  appears  to  have  allotted  to  it  any  brand  of 
smoking  tobacco  which  requires  this  grade  of  Virginia  and  North 
Carolina  tobacco;  and  the  requirements  of  the  R.  J.  Reynolds 
Tobacco  Co.  for  this  grade  would  be  insignificant. 

(b)  Low-grade  smoker:  The  Liggett  &  Myers  Tobacco  Co.  re- 
quires for  its  brand  of  "Duke's  Mixture,"  the  grade  known  as  Vir- 
ginia and  North  Carolina  low-grade  smoker.  Neither  the  American 
Tobacco  Co.  nor  P.  Lorillard  Co.  appears  to  have  had  allotted  to  it 
any  brand  of  smoking  tobacco  which  requires  this  low-grade 
smoker,  and  the  amount,  if  any,  required  by  the  R.  J.  Reynolds 
Tobacco  Co.  or  the  British- American  Co.  would  be  insignificant. 

(c)  Leaf:  The  R.  J.  Reynolds  Tobacco  Co.,  for  their  brands  of 
"Schnapps"  and  "Brown's  Mule"  and  minor  brands,  purchase 
the  greater  part  of  the  grade  known  as  leaf  Virginia  and  North 
Carolina.  Neither  the  American  Tobacco  Co.  nor  the  Liggett  & 
Myers  Tobacco  Co.  requires  any  of  this  grade. 

(d)  Export  leaf:  The  British- American  Tobacco  Co.  purchases 


Efficacy  of  Dissolution  511 

for  its  export  business  entirely  different  grades  of  Virginia  and  North 
Carolina  from  those  referred  to  above,  the  grades  purchased  by  them 
being  known  as  export  leaf  Virginia  and  North  Carolina.  Neither 
the  American  Tobacco  Co.,  the  Liggett  &  Myers  Tobacco  Co.,  the 
P.  Lorillard  Co.,  nor  the  R.  J.  Reynolds  Tobacco  Co.  requires 
any  appreciable  quantity  of  the  distinct  export  grades  of  tobacco. 

3.  Dark  western  tobacco. — Defendants'  plan,  Exhibit  E,  shows  that 
the  average  crop  of  dark  western  tobacco  is  200,000,000  pounds, 
of  which,  however,  a  large  part  is  exported.  Of  the  American  con- 
sumption, the  American  Tobacco  Co.  takes  19,433,365;  Liggett  & 
Myers  Tobacco  Co.,  only  3,196,866;  P.  Lorillard  Co.,  only  1,446,- 
213;  and  the  R.  J.  Reynolds  Tobacco  Co.  none.  It  will  be  seen, 
therefore,  that  the  greater  part  of  all  the  purchases  of  dark  western 
is  made  by  the  American  Tobacco  Co.  and  is  used  by  it  for  its 
smoking  brands  of  "Five  Brothers"  and  "Peerless,"  the  two 
largest  selling  brands  of  long-cut  in  America. 

4.  Seed  Leaf. — Defendants'  plan,  Exhibit  E,  shows  that  of  the 
seed-leaf  tobacco,  which  is  used  mainly  for  cigars  and  so-called 
scrap  smoking  and  chewing  tobacco,  the  average  production  of  the 
country  is  180,000,000  pounds.  Of  this  the  quantity  purchased 
by  the  American  Tobacco  Co.  is  estimated  at  6,112,099;  by  the 
Liggett  &  Myers  Tobacco  Co.,  5,676,180;  by  the  P.  Lorillard  Co., 
19,993,726;  and  by  the  R.  J.  Reynolds  Tobacco  Co.  none.  The 
trust's  use  of  this  tobacco,  aside  from  cigars  and  cheroots,  is  mainly 
for  its  scrap-tobacco  business  and  little  cigars,  of  which  the  largest 
selling  brands  are  "  Honest"  and  "  Polar  Bear."  Both  of  the  brands 
are  assigned  to  the  P.  Lorillard  Co.,  thus  making  that  company 
among  the  constituent  elements  of  the  trust,  by  far  the  leading 
purchaser  of  seed  leaf.  The  trust's  purchases  of  low-grade  seed 
leaf — that  is,  the  filler  types,  hail-cut  types,  and  other  types  of  leaf 
damaged  in  growing — are  so  great  in  Wisconsin,  Connecticut, 
and  New  York  that  it  practically  dominates  the  American  markets 
for  low  grades  of  seed-leaf  tobacco,  with  the  exception  perhaps  of 
Pennsylvania  and  Ohio — and  in  some  years  the  markets  of  these 
States  also. 

Second. — The  cigarette  trade. 

Defendants'  plan,  Exhibit  D,  indicates  on  its  face  such  a  dis- 
tribution of  the  cigarette  business  of  the  trust  as  to  create  reason- 
able competition  between  the  American  Tobacco  Co.,  Liggett  & 
Myers  Tobacco  Co.,  and  P.  Lorillard  Co.    The  American  Tobacco 


512  Industrial  Combinations  and  Trusts 

Co.  is  given  four  brands,  Liggett  &  Myers  six  brands,  and  the 
Lorillard  Co.  five  brands.  As  a  matter  of  fact,  the  creation  of 
competition  in  cigarettes  among  these  three  companies  is  apparent 
only;  because  the  brands  are  so  distributed  as  to  give  each  of  the 
three  companies  substantially  a  dominating  position  in  a  specific 
branch  of  the  cigarette  trade  or  of  a  specific  cigarette  market. 

The  cigarette  trade  falls  substantially  into  six  classes:  Turkish 
high-grade  cigarettes,  Turkish  lower-grade  cigarettes,  domestic  or 
Virginia  cigarettes,  Turkish  and  domestic  mixed,  lowest  grade  of 
mixed  Turkish  and  domestic,  and  domestic  cigarettes  with  Turkish 
mouthpieces. 

i.  Turkish  high  grade. — Under  the  plan,  the  dominating  position 
in  the  Turkish  high  grade  is  given  to  the  American  Tobacco  Co. 
through  the  "Pall  Mall"  brand.  No  brand  of  high-grade  Turkish 
cigarette  is  allotted  to  the  Liggett  &  Myers  Tobacco  Co.  The 
brand  given  the  P.  Lorillard  Co.,  "Egyptian  Deities,"  has  become 
relatively  unimportant  as  compared  with  "Pall  Mall." 

2.  Turkish  lower  grade. — The  dominant  position  in  the  lower- 
grade  Turkish  cigarettes  is  given  to  the  P.  Lorillard  Co.  by  allotting 
to  it  the  "Helmar,"  "Murad,"  "Mogul,"  and  "Turkish  Trophies." 
Neither  the  American  nor  the  Liggett  &  Myers  Tobacco  Co.  is 
allotted  any  strictly  competing  brand. 

3.  Domestic  or  Virginia. — The  Liggett  &  Myers  Tobacco  Co. 
is  given  the  dominant  position  through  the  "Piedmont,"  "Home 
Run,"  "  King  Bee,"  and  "  American  Beauty"  brands.  The  P.  Loril- 
lard Co.  is  not  allotted  any  competing  brand.  The  American  To- 
bacco Co.  receives  the  "  Sweet  Caporal" ;  but  the  sales  of  that  brand 
have  become  insignificant. 

4.  Turkish  and  domestic  mixed. — The  Liggett  &  Myers  Tobacco 
Co.  is  allotted  the  "Fatima"  brand,  which  is  believed  to  be  the 
most  important  brand  of  cigarette  upon  the  market.  Neither  the 
American  Tobacco  Co.  nor  the  P.  Lorillard  Co.  is  allotted  any 
brand  which  competes  with  this. 

5.  Lowest  grade  Turkish  or  perhaps  Turkish  and  Virginia  mixed. — 
The  American  Tobacco  Co.  is  allotted  both  the  "Hassan"  and  the 
"Mecca"  brands.  Neither  the  Liggett  &  Myers  Tobacco  Co.  nor 
the  P.  Lorillard  Co.  is  allotted  any  competing  brands. 

6.  Domestic  with  Turkish  mouthpiece. — The  Liggett  &  Myers 
Tobacco  Co.  is  allotted  the  "Imperiales,"  which  has  a  monopoly 
not  merely  in  this  kind  of  cigarette  but  also  substantially  of  the 
market  (mainly  the  Pacific  coast)  where  it  is  sold. 


Efficacy  of  Dissolution  513 

Not  only  is  each  of  the  three  companies  thus  given  a  dominating 
position  in  the  respective  classes  of  the  cigarette  trade,  but  the 
domination  through  those  classes  extends  to  a  certain  extent  also 
to  particular  territories.  For  instance,  the  P.  Lorillard  Co.  has 
been  allotted  the  brands  which  sell  most  largely  in  the  East,  and 
the  Liggett  &  Myers  Tobacco  Co.  the  brands  which  sell  best  in  the 
Middle  West  and  South. 

Third. — The  smoking-tobacco  trade. 

Defendants'  plan,  Exhibit  D,  presents  the  apparent  creation  of 
competition  in  smoking  tobacco  by  giving  to  the  American  Tobacco 
Co.  six  brands,  to  the  Liggett  &  Myers  Tobacco  Co.  seven  brands, 
and  to  the  P.  Lorillard  Co.  five  brands.  In  fact,  no  substantial 
competition  between  these  three  companies  is  provided  for. 

The  smoking  tobacco  of  the  country  is  divided  into  seven  different 
classes,  namely,  high-grade  granulated,  low-grade  granulated,  high- 
grade  burley  granulated  put  up  in  10-cent  tin  toxes,  sliced  plugs, 
long  cuts,  cut  plugs,  and  scrap. 

1.  High-grade  gramdatcd. — The  American  Tobacco  Co.  is  allotted 
"Bull  Durham,"  the  leading  brand  of  smoking  tobacco  in  the 
country.  No  brand  of  high-grade  Virginia  granulated  smoking  to- 
bacco is  allotted  either  to  the  Liggett  &  Myers  Tobacco  Co.,  the 
P.  Lorillard  Co.,  or  the  R.  J.  Pveynolds  Tobacco  Co. 

2.  Low-grade  granulated. — The  Liggett  &  Myers  Tobacco  Co.  is 
allotted  "Duke's  Mixture,"  the  leading  brand  of  low-grade  granu- 
lated tobacco  in  the  country,  as  well  as  "King  Bee."  No  competing 
brand  of  low-grade  Virginia  granulated  smoking  tobacco  is  allotted 
either  to  the  American  Tobacco  Co.  or  to  the  P.  Lorillard  Co. 

3.  High-grade  burley  granulated. — In  this  department  there  is  a 
reasonable  distribution  of  brands  between  the  three  companies,  the 
American  Tobacco  Co.  having  "Tuxedo,"  the  Liggett  &  Myers 
Tobacco  Co.  "Velvet,"  and  the  R.  J.  Reynolds  Tobacco  Co.  the 
"Prince  Albert"  brands. 

4.  Sliced  plugs. — The  leading  brands  are  "Lucky  Strike"  and 
"Old  English,"  both  assigned  to  the  American  Tobacco  Co.  Neither 
the  Liggett  &  Myers  Tobacco  Co.,  the  P.  Lorillard  Co.,  nor  the  R.  J. 
Reynolds  Tobacco  Co.  is  allotted  any  sliced  plug  brand. 

5.  Long  cuts. — The  leading  brands  are  "Five  Brothers"  and 
"Peerless,"  both  allotted  to  the  American  Tobacco  Co.  These  are 
the  best  selling  brands  in  the  country  manufactured  from  dark 
tobacco.   Neither  the  Leggett  &  Myers  Tobacco  Co.,  the  P.  Lorillard 


514  Industrial  Combinations  and  Trusts 

Co.,  nor  the  R.  J.  Reynolds  Tobacco  Co.  is  allotted  any  brand  com- 
peting with  these.  On  the  other  hand,  Liggett  &  Myers  Tobacco 
Co.  is  allotted  "  Sweet  Tip  Top,"  a  kind  of  long-cut  made  from  burley 
tobacco,  and  neither  the  American  Tobacco  Co.  nor  the  P.  Lorillard 
Tobacco  Co.,  nor  the  R.  J.  Reynolds  Tobacco  Co.  is  allotted  any 
brand  which  competes  with  it. 

6.  Cut  plugs. — The  three  leading  brands  of  cut  plugs  are  allotted 
to  the  P.  Lorillard  Co.,  namely," Union  Leader,"  "Sensation,"  and 
"Just  Suits."  Neither  the  American  Tobacco  Co.  nor  the  Liggett  & 
Myers  Tobacco  Co.  is  allotted  any  brand  wheh  competes  with  these. 
The  R.  J.  Reynolds  Tobacco  Co.  has  a  new  brand,  "Geo.  Washing- 
ton," not  yet  well  established,  which  may  be  deemed  a  competitor. 

7.  Scrap. — The  two  principal  brands  are  assigned  to  the  P.  Loril- 
lard Co.,  namely,  "Honest"  and  "Polar  Bear."  Neither  the  American 
Tobacco  Co.,  the  Liggett  &  Myers  Tobacco  Co.,  nor  the  R.  J.  Reyn- 
olds Tobacco  Co.  appears  to  have  any  brand  of  scrap  tobacco. 

Fourth. — The  plug  tobacco  trade. 

Defendants'  plan,  Exhibit  D,  presents  an  apparent  competition 
in  plug  tobacco  by  giving  to  the  American  Tobacco  Co.  nine  brands, 
Liggett  &  Myers  three  brands,  and  P.  Lorillard  two  brands.  As 
a  matter  of  fact,  there  are  several  distinct  classes  of  plug  tobacco. 
Plug  may  be  divided  broadly  into  sweet  navy  plugs  and  flat  plugs. 
The  sweet  navy  should  be  divided  again  into  three  grades — high, 
medium,  and  low.  The  flat  plugs  are  divided  into  two  classes, 
sun-cured  and  flue-cured. 

1.  Navy  high. — The  leading  navy  high-grade,  "Piper  Heidsieck," 
is  allotted  to  the  American  Tobacco  Co.  Neither  the  Liggett  & 
Myers  Tobacco  Co.,  the  P.  Lorillard  Co.,  nor  the  R.  J.  Reynolds 
Tobacco  Co.  is  given  any  competing  brand.  There  is  another  high- 
grade  chewing  tobacco — Drummond's  Natural  Leaf — allotted  to 
the  Liggett  &  Myers  Tobacco  Co.,  but  it  is  not  of  the  same  class  as 
the  Piper  Heidsieck. 

2.  Navy  medium. — The  leading  brands  of  medium  navy  plug  are 
"Star"  and  "Horseshoe."  Both  of  these  are  allotted  to  the  Liggett 
&  Myers  Tobacco  Co.  These  are  the  controlling  brands  in  Amer- 
ica. The  American  Tobacco  Co.  is  allotted  "  Spearhead,"  a  compet- 
ing brand,  but  its  sales  are  relatively  unimportant.  The  P.  Lorillard 
Co.  is  allotted,  likewise,  a  competing  brand,  "  Climax,"  but  the  sales 
of  it  are  also  relatively  unimportant.    The  sales  for  1907  of  "Star" 


Efficacy  of  Dissolution  515 

were  27,322,478  pounds,  of  "Horseshoe"  19,211,575,  whereas  those 
of  "Spearhead"  were  6,850,025,  and  of  "Climax"  2,657,306. 

The  P.  Lorillard  Co.  also  is  allotted  the  "Planet"  brand,  but 
that  is  of  a  somewhat  different  character.  It  stands  in  a  class  by 
itself  and  controls  the  New  England  market. 

3.  Navy  low  grade. — The  leading  brand  of  low-grade  navy  is 
"American  Navy."  This,  as  well  as  "Square  Deal,"  "Corker," 
and  "Town  Talk,"  all  navy  low  grade,  are  alloted  to  the  American 
Co.  Neither  the  Liggett  &  Myers  Tobacco  Co.,  the  P.  Lorillard  Co., 
nor  the  R.  J.  Reynolds  Tobacco  Co.  is  allotted  any  brand  of  this 
class. 

4.  Sun-cured  plug. — The  R.  J.  Reynolds  Tobacco  Co.  controls 
many  brands  of  the  sun-cured  plug,  the  principal  of  which  is  "  R.  J.  R. 
Sun-cured."  Exhibit  D  does  not  disclose  that  either  the  American 
Tobacco  Co.,  the  Liggett  &  Myers  Tobacco  Co.,  or  the  P.  Lorillard 
Tobacco  Co.  will  have  any  competing  brand. 

5.  Flue-cured  plug. — The  R.  J.  Reynolds  Tobacco  Co.,  through  its 
several  brands,  of  which  the  two  leading  ones  are  "Schnapps"  and 
"Brown's  Mule,"  controls  the  flue-cured  flat  plug.  Neither  the 
American  Tobacco  Co.  nor  P.  Lorillard  Co.  would  have,  so  far  as 
the  plan  discloses,  any  competing  brand. 

The  domination  by  particular  companies  of  particular  depart- 
ments of  the  plug-tobacco  trade  is  not,  however,  confined  merely 
to  the  domination  of  classes  of  plug,  as  indicated  above.  It  extends 
to  a  certain  extent  also  to  the  domination  of  markets.  Thus  the 
Liggett  &  Myers  Tobacco  Co.,  with  "Star"  and  "Horseshoe,"  will 
dominate  the  Middle  West;  R.  J.  Reynolds  Tobacco  Co.,  with 
"Brown's  Mule"  and  "Schnapps,"  will  dominate  the  South;  and 
the  P.  Lorillard  Co.,  with  "Planet,"  will  dominate  the  chewing-plug 
business  of  New  England. 

Fifth. — Little  cigars  trade. 

Defendants'  plan,  Exhibit  D,  purports  to  show  competition  in 
little  cigars,  awarding  to  the  American  Tobacco  Co.,  Liggett  &  Myers 
Tobacco  Co.,  and  the  P.  Lorillard  Co.  each  one  brand.  As  a  matter 
of  fact,  there  are  two  or  three  distinct  kinds  of  little  cigars — the 
high  grade,  selling  10  for  10  cents;  the  low  grade,  selling  10  for  5 
cents;  some  with  Burley  and  some  with  seed  wrapper. 

The  Lorillard  Co.,  with  "Between  the  Acts,"  will  dominate  the 
high-grade  little-cigar  business;  the  Liggett  &  Myers  Tobacco  Co. 
with  "Recruit,"  will  dominate  the  low-grade  little-cigar  business; 


516  Industrial  Combinations  and  Trusts 

and  the  American  Tobacco  Co.  will  have  "Sweet  Caporal,"  a  little- 
cigar  brand  of  a  distinct  type. 

Exhibit  9 
respondents  amended  return  to  the  alternative  writ  of 

MANDAMUS l 

Respondents  for  a  further  return  to  the  said  alternative  writ  of 
mandamus,  say  that  neither  of  relators  has  any  direct  personal 
interest  in  said  Waters-Pierce  Oil  Company,  and  neither  of  them  in 
his  own  right,  or  in  his  own  interest,  or  in  the  pursuit  of  his  own 
business,  owns  any  of  the  stock  of  the  Waters-Pierce  Oil  Company; 
but  respondents  say  that  said  relators  are  acting  herein  solely  as 
the  representatives  of  John  D.  Rockefeller,  William  Rockefeller, 
Henry  M.  Flagler,  John  D.  Archbold,  Oliver  H.  Payne,  Charles  M. 
Pratt,  and  divers  other  persons  whose  names  are  to  respondents 
unknown,  who  are  the  same  parties  who  have  heretofore  owned  and 
controlled  the  Standard  Oil  Company  of  New  Jersey,  which  has 
been  heretofore  dissolved  by  the  courts  of  the  United  States  as  an 
unlawful  combination  in  restraint  of  trade,  as  will  be  hereinafter 
more  particularly  set  forth,  and  that  said  individuals  so  represented 
by  relators  have  combined  and  confederated  to  continue  said  un- 
lawful combination  and  conspiracy  thus  dissolved.  Respondents 
further  say  that  said  unlawful  combination  and  conspiracy  now 
existing  consists  in  the  control  of  the  majority  of  stock  in  subsidiary 
corporations  located  in  different  States,  and  that  such  stock  control 
is  the  essential  and  effective  means  of  furthering  the  purposes  of  said 
unlawful  combination,  the  purpose  and  effect  of  which  is  to  create 
a  monopoly  in  the  production  and  sale  of  petroleum  and  its  products 
throughout  the  United  States. 

1  State  of  Missouri  ex  rel.  Stewart  v.  J.  D.  Johnson.  Pleadings,  Rulings  by 
the  Court  etc.,  In  the  Circuit  Court  of  the  City  of  St.  Louis,  April  Term,  191 2, 
pp.  40  ff.  This  controversy  arose  by  reason  of  the  refusal  of  the  Inspectors  of 
Election  of  the  Waters-Pierce  Oil  Company,  that  had  been  designated  by  Mr. 
Pierce  as  President,  to  count  the  majority  votes  of  the  Company  that  had  been 
cast  at  the  instance  of  the  Standard  Oil  interests.  This  refusal  was  based  on  the 
ground  that  the  shares  were  being  illegally  voted  in  furtherance  of  a  conspiracy 
to  violate  and  evade  the  decree  of  the  Federal  Court. 

Although  Mr.  Pierce  owns  only  approximately  one-third  of  the  shares  he  has 
been  in  control  of  the  Waters-Pierce  Company  and  under  the  Missouri  Law  the 
President  names  the  Inspectors  of  Election.  Upon  the  refusal  to  count  these 
votes  the  proxies  named  by  the  Standard  Oil  brought  a  proceeding  in  mandamus 
in  the  State  of  Missouri  against  the  Inspectors  of  Election. — Ed. 


Efficacy  of  Dissolution  517 

Respondents  further  say  that  the  relators  herein  are  acting  solely 
as  the  representatives  of  said  unlawful  combination  and  conspiracy  in 
attempting  to  secure  the  control  of  the  Waters-Pierce  Oil  Company, 
and  that  the  means  by  which  the  objects  of  said  conspiracy  are 
sought  to  be  carried  out  are  the  election  of  a  majority  of  the  direc- 
torate of  the  Waters-Pierce  Oil  Company  and  other  subsidiary 
corporations  in  different  States,  which  should  thus  be  composed 
either  of  the  parties  to  said  conspiracy  or  the  nominees  of  those  en- 
gaged therein;  and  by  this  means  the  complete  domination  of  the 
industry  will  be  effected  and  a  monopoly  secured  therein. 

Respondents  say  that  the  relators  herein  are  parties  to  said  con- 
spiracy, and  are  under  its  control,  and  are  its  nominees  for  the  said 
purpose,  and  that  the  attempt  to  elect  them  to  the  directorate  of 
the  Waters-Pierce  Oil  Company  is  for  the  purpose  of  securing  the 
control  of  said  company  in  the  furtherance  of  said  unlawful  con- 
spiracy and  as  one  of  the  overt  acts  in  effectuating  this  common 
design  in  the  establishment  of  said  monopoly.  Respondents  say 
that  this  proceeding  in  mandamus  is  a  furtherance  of  said  unlawful 
purpose. 

Respondents  further  say  that  the  unlawful  combination  and  con- 
spiracy, violative  of  the  laws  of  the  United  States,  and  of  the  State 
of  Missouri,  which  is  thus  sought  to  be  effected  by  these  relators, 
in  securing  the  control  of  the  Waters-Pierce  Oil  Company,  is  a  con- 
tinuance and  renewal  of  the  same  unlawful  combination  and  con- 
spiracy in  restraint  of  trade  which  has  been  adjudged  and  condemned 
by  the  Supreme  Court  of  Missouri,  affirmed  by  the  Supreme  Court 
of  the  United  States  and  by  the  Circuit  Court  of  the  United  States, 
the  Eighth  Judicial  Circuit,  affirmed  by  the  Supreme  Court  of  the 
United  States,  as  hereinafter  specifically  set  forth. 

Wherefore,  respondents  say  that  relators  are  merely  acting  in 
behalf  of  said  unlawful  combination  and  conspiracy,  and  for  further- 
ing the  purposes  thereof,  and  that  the  jurisdiction  and  process  of 
this  court  should  not  be  used  to  accomplish  any  such  unlawful  end 
or  purpose. 

X 

And  respondents  further  say:  That  the  relator,  George  W.  Mayer, 
until  two  days  before  the  annual  election  for  directors  of  the  Waters- 
Pierce  Oil  Company,  was  manager  at  Kansas  City,  Missouri,  for 
the  Standard  Oil  Company  of  Indiana,  and  had  been  for  more  than 
ten  years  prior  to  that  time;  that  he  resigned  his  said  position  of 


518  Industrial  Combinations  and  Trusts 

manager  for  the  Standard  Oil  Company  of  Indiana  at  Kansas  City 
to  accept  election  to  the  Board  of  Directors  of  the  Waters-Pierce 
Oil  Company;  that  his  resignation  as  aforesaid  was  in  obedience  to 
the  dictation  of  the  vice-president,  or  president,  of  the  Standard 
Oil  Company  of  Indiana,  and  was  a  mere  pretense  to  enable  the 
Standard  Oil  Company  of  Indiana  through  him  by  his  election  to  the 
board  of  the  Waters-Pierce  Oil  Company  to  gain  control  of  the  man- 
agement of  the  Waters-Pierce  Oil  Company. 

That  the  relator,  Robert  W.  Stewart,  has  been  attorney  and 
counsel  for  the  Standard  Oil  Company  of  Indiana  and  other  in- 
terests affiliated  and  associated  with  the  said  Standard  Oil  Company 
of  Indiana  and  the  Standard  Oil  Company  of  New  Jersey,  and  the 
managers  and  stockholders  of  said  two  companies;  and  that  said 
Stewart  at  the  instance  and  request  of  the  officers  and  majority 
shareholders  of  each  of  said  two  companies  acquired  a  share  of  stock 
in  the  Waters-Pierce  Oil  Company  in  order  to  enable  him  through 
the  vote  and  influence  of  the  Standard  Oil  Company  of  New  Jersey, 
Standard  Oil  Company  of  Indiana,  and  their  respective  officers, 
agents,  employes  and  controlling  shareholders  to  become  a  director 
of  the  Waters-Pierce  Oil  Company  at  the  annual  election  for  directors, 
to  be  held  on  the  15th  day  of  February,  1912,  and  thereby  enable 
the  said  Standard  Oil  Company  of  Indiana,  its  officers,  agents  and 
the  holders  of  the  majority  of  its  stock  through  the  election  of  said 
Stewart  and  said  Mayer  and  Adams  to  dominate  and  control  in  the 
interest  of  said  Standard  Oil  Company  of  Indiana  and  its  majority 
shareholders,  officers  and  agents  the  affairs  of  the  Waters-Pierce  Oil 
Company. 


The  respondents  aver  that  to  permit  the  election  of  the  relators 
as  directors  of  the  Waters-Pierce  Oil  Company  would  be  to  place  the 
affairs  of  the  Waters-Pierce  Oil  Company  under  the  complete  dom- 
ination and  control  of  the  Standard  Oil  Company  of  Indiana,  and 
the  majority  owners  of  the  stock  of  the  Standard  Oil  Company  of 
Indiana. 

Respondents  further  say  that  since  the  13th  day  of  February, 
1909,  as  directed  by  a  decree  of  the  Supreme  Court  of  Missouri,  in  a 
proceeding  wherein  the  State  of  Missouri  upon  the  information  of 
the  Attorney-General  against  the  Waters-Pierce  Oil  Company,  the 
Standard  Oil  Company  of  Indiana  and  the  Republic  Oil  Company, 
the  affairs  of  the  Waters-Pierce  Oil  Company  have  been  conducted 


Efficacy  of  Dissolution  519 

by  Henry  Clay  Pierce  and  Clay  Arthur  Pierce  in  complete  inde- 
pendence of  the  Standard  Oil  Company  of  Indiana  and  of  all  other 
combinations  whatsoever  as  required  by  the  order  of  the  Court  in 
that  case  to  be  done. 

That  the  Standard  Oil  Company  of  Indiana  and  the  Waters-Pierce 
Oil  Company  are  competitors  in  the  business  of  selling  the  products 
of  petroleum,  as  was  held  in  the  case  above  mentioned,  and  that  if 
the  Standard  Oil  Company  of  Indiana,  through  the  relators  and 
the  holders  of  the  majority  of  stock  of  the  said  Standard  Oil  Company 
of  Indiana,  should  gain  control  of  the  affairs  of  the  Waters-Pierce 
Oil  Company,  as  is  proposed  by  the  relators  in  this  proceeding,  the 
corporate  charter  of  the  Waters-Pierce  Oil  Company  will  be  thereby 
forfeited,  and  the  said  Henry  Clay  Pierce  and  the  minority  share- 
holders of  the  Waters-Pierce  Oil  Company  associated  with  him  will 
sustain  great  and  serious  loss  through  the  forfeiture  of  the  charter 
of  the  said  Waters-Pierce  Oil  Company,  as  well  as  in  the  management 
of  the  affairs  of  that  company,  for  that  those  whom  the  relators 
represent  as  aforesaid  herein  have  a  greater  interest  in  promulgating 
the  success  of  the  Standard  Oil  Company  of  Indiana  than  that  of 
the  Waters-Pierce  Oil  Company. 

Relators  further  say  that  on  the  29th  day  of  March,  1905,  the  State 
of  Missouri,  upon  the  information  of  the  Attorney-General,  in- 
stituted in  the  Supreme  Court  of  the  State  a  proceeding  in  quo  war- 
ranto against  the  Standard  Oil  Company  of  Indiana,  the  Waters- 
Pierce  Oil  Company  and  the  Republic  Oil  Company  from  doing 
business  in  the  State  of  Missouri  and  to  forfeit  the  charter  of  the 
Waters-Pierce  Oil  Company  because  they  were  then  and  had  there- 
tofore been  engaged  in  a  combination  in  restraint  of  trade  in  the 
State  of  Missouri. 

That  such  proceeding  was  had  in  said  case  as  that  on  the  9th  day 
of  March,  1909,  a  judgment  of  ouster  was  entered  in  said  cause 
against  the  Standard  Oil  Company  of  Indiana  and  the  Republic  Oil 
Company,  a  non-resident  corporation,  and  a  judgment  conditionally 
forfeiting  the  charter  of  the  Waters-Pierce  Oil  Company,  a  domestic 
corporation,  as  alleged  in  the  alternative  writ  herein. 

That  from  said  judgment  and  decree  the  Standard  Oil  Company 
of  Indiana  and  said  Republic  Oil  Company  appealed  to  the  Supreme 
Court  of  the  United  States  of  America,  and  pending  said  appeal  a 
supersedeas  was  granted  said  appellant,  but  that  no  appeal  was 
taken  therefrom  by  the  Waters-Pierce  Oil  Company,  which,  as  afore- 
said, submitted  to  said  decree  and  obeyed  the  same,  and  pending 


520  Industrial  Combinations  and  Trusts 

the  said  appeal  a  supersedeas  was  granted  said  appellants;  but  there- 
after, at  the  October  Term,  191 1,  on  April  1,  1912  said  cause  having 
been  duly  submitted,  the  judgment  of  the  Supreme  Court  of  the 
State  of  Missouri  was  in  all  things  affirmed  by  the  Supreme  Court 
of  the  United  States,  so  that  said  decree  is  now  in  full  force  and  effect 
as  to  said  Standard  Oil  Company  of  Indiana  and  said  Republic  Oil 
Company,  as  well  as  to  said  Waters-Pierce  Oil  Company. 
That  amongst  other  things,  it  was  decreed  in  said  case  as  follows: 

"But  it  is  further  considered,  ordered  and  adjudged  by 
this  Court,  that  if  the  said  Waters-Pierce  Oil  Company  shall 
pay  said  fine  to  the  clerk  of  this  court  on  or  before  the  first 
day  of  March,  1909,  and  shall  immediately  cease  all  connection 
with  the  said  respondents  herein  in  continuing  or  maintaining 
said  pool,  trust  and  conspiracy  to  fix,  control  and  regulate  the 
prices  of  naphtha,  benzine,  gasoline,  kerosene,  lubricating  oil 
and  all  other  products  of  petroleum,  and  shall  refrain  from  all 
pools,  trusts  and  combinations,  to  control  the  prices  of  said 
products  of  petroleum,  and  all  combines  and  conspiracies  to 
prevent  competition  in  the  trade  of  buying  and  selling  said 
products  and  shall  furnish  this  Court  with  satisfactory  evi- 
dence of  its  compliance  with  this  judgment  and  of  its  intention 
in  good  faith  to  cease  all  connection  with  its  said  co-respondents 
herein  and  all  other  parties  or  companies  whatsoever  and  in 
the  future  maintain  and  carry  on  the  business  as  an  independ- 
ent corporation  in  obedience  to  the  laws  of  this  State  and  its 
charter,  then  the  judgment  of  the  ouster  herein  shall  be  and 
is  hereby  suspended  and  the  writ  of  ouster  herein  will  not 
issue  until  expressly  directed  by  the  order  of  this  Court." 

Respondents  further  pray  preference  to  the  said  proceeding  as 
reported  in  Volume  218  of  the  Official  Reports  of  the  Supreme  Court 
of  the  State  of  Missouri. 

Respondents  further  say  that  on  the  15th  day  of  February,  1909, 
the  Waters-Pierce  Oil  Company  filed  in  said  court  the  following  ac- 
ceptance of  said  decree,  accompanied  by  a  duly  exemplified  copy  of 
the  resolution  of  its  Board  of  Directors  in  that  behalf,  to- wit: 

"  Comes  now  the  Waters-Pierce  Oil  Company  in  the  above- 
entitled  cause,  pursuant  to  the  order  and  judgment  rendered 
herein,  and  files  herewith  a  duly  certified  copy  of  a  resolution 
of  its  Board  of  Directors,  passed  February  13,  1909,  wherein 


Efficacy  of  Dissolution  521 

and  whereby  it  agrees  to  accept,  and  does  accept  the  conditions 
of  the  aforesaid  decree  and  agrees  to  abide  by  the  same,  and 
does  hereby  respectfully  submit  itself  to  the  further  orders, 
judgments  and  decrees  of  this  Honorable  Court  in  and  con- 
cerning the  premises." 

These  respondents  say  that  in  said  cause  it  appeared  that  the 
Standard  Oil  Company  of  New  Jersey  owned  practically  all  of  the 
stock  which  relators  herein  now  claim  is  being  offered  to  your  re- 
spondents as  electors  for  them  in  the  Waters-Pierce  Oil  Company, 
namely,  practically  66  per  cent  thereof;  that  said  stock  was  then 
registered  on  the  stock  books  of  the  Waters-Pierce  Oil  Company  in 
the  name  of  M.  M.  Van  Beuren,  who  appeared  as  owner  and  a  joint 
attorney  in  fact  of  the  electors  whom  the  relators  claim  would  have 
cast,  if  permitted,  their  votes  for  them.  It  also  appeared  in  said 
cause  that  the  Standard  Oil  Company  of  New  Jersey  owned  all  of 
the  shares  of  the  Standard  Oil  Company  of  Indiana,  co-respondent 
of  the  Waters-Pierce  Oil  Company  in  said  cause. 


Respondents  say  in  further  return  to  said  alternative  writ  of  man- 
damus that  on  the  15th  day  of  November,  1906,  the  United  States 
of  America  instituted  a  proceeding  under  an  Act  of  Congress,  ap- 
proved July  2,  1890,  entitled  an  "Act  to  Protect  Trade  and  Com- 
merce against  Unlawful  Restraint  and  Monopolies,"  commonly 
known  as  the  Sherman  Anti-Trust  law,  against  John  D.  Rockefeller, 
William  Rockefeller,  Henry  H.  Rogers,  Henry  M.  Flagler,  John  D. 
Archbold,  Oliver  H.  Payne  and  Charles  M.  Pratt,  and  other  persons 
and  corporations  hereinafter  named  in  the  decree  herein  referred 
to,  save  and  except  the  Standard  Oil  Company  of  Louisiana  and  the 
Magnolia  Oil  Company  and  the  Waters-Pierce  Oil  Company  and 
other  defendants,  to  restrain  them  in  substance  from  continuing  a 
combination  and  conspiracy  in  restraint  of  trade  and  commerce, 
among  the  several  States,  in  the  Territories  and  with  foreign  nations; 
that  such  proceedings  were  had  therein  that  on  the  20th  day  of 
November,  1909  a  decree  was  entered  therein,  .  .  . 


The  respondents  further  say  that  an  appeal  was  prosecuted  from 
said  decree  to  the  Supreme  Court  of  the  United  States,  which  latter 
Court,  after  due  hearing,  affirmed  all  of  the  said  quoted  parts  of  said 
decree,  and  in  its  opinion,  which  respondents  beg  leave  to  be  con- 


Industrial  Combinations  and  Trusts 

:  '■.'..red  a  part  of  this  return  as  fully  as  if  set  forth  herein,  commenting 
upon  the  objections  of  section  6  of  said  decree,  said: 

"So  far  as  the  owners  of  the  stock  of  the  subsidiary  cor- 
porations and  the  corporations  themselves  were  concerned 
alter  the  stock  had  been  transferred,  section  6  of  the  decree 
enjoined  them  from  in  any  way  conspiring  or  combining  to 
violate  the  act  or  to  monopolize  or  attempt  to  monopolize  in 
virtue  of  their  ownership  of  the  stock  transferred  to  them,  and 
prohibited  all  agreements  between  the  subsidiary  corporations 
or  other  stockholders  in  the  future,  tending  to  produce  or 
bring  about  further  violations  of  the  act.  *  *  *  We  so  think, 
since  we  construe  the  sixth  paragraph  of  the  decree  not  as 
depriving  the  stockholders  or  the  corporations  after  the  dis- 
solution of  the  combination,  of  the  power  to  make  normal  and 
lawful  contracts  or  agreements,  but  as  restraining  them  from, 
by  any  device  whatever,  recreating,  directly  or  indirectly,  the 
illegal  combination  which  the  decree  dissolved.  In  other 
words,  we  construe  the  sixth  paragraph  of  the  decree  not  as 
depriving  the  stockholders  or  corporations  of  the  right  to  live 
under  the  law  oi  the  land,  but  as  compelling  obedience  to  that 
law.  As  therefore,  the  sixth  paragraph  as  thus  construed  is 
not  amenable  of  the  criticism  directed  against  it  and  cannot 
produce  the  harmful  results  which  the  arguments  suggest,  it 
was  obviously  right." 

These  respondents  say  the  said  decree  has  not  been  complied  with  in 
any  substantial  respect;  that  the  individual  defendants  in  that  case,  and 
the  corporations  which  they  control  through  their  ownership  and  control 
of  the  majority  of  the  shares  of  stock  of  the  Standard  Oil  Company  of 
New  Jersey,  at  the  time  said  decree  was  entered,  is  now  owned  and  con- 
trolled by  a  combination  between  said  individual  defendants  mentioned 
■in  said  decree,  their  associates,  confederates  and  allies,  through  the  con- 
certed action  in  their  ownership  of  the  stock  of  the  Standard  Oil  Company 
of  Indiana,  and  all  of  the  defendant  companies  named  in  said  decree.1 
That  said  combination  continues  as  it  did  as  found  in  the  first  para- 
graph or  section  of  the  decree,  since  the  year  1890,  when  the  said 
defendants  had  entered  into  and  were  carrying  out  a  combination 
or  conspiracy  in  pursuance  whereof  they  caused  the  capital  stock  of 
the  Standard  Oil  Company  to  be  increased  to  one  hundred  million 
1  Italics  are  the  Editor's. 


Efficacy  of  Dissolution  523 

dollars,  and  assumed  control  of  all  subsidiary  companies  through  the 
ownership  of  stock  by  the  Standard  Oil  Company  of  New  Jersey; 
that  instead  of  controlling  all  the  subsidiary  companies  mentioned  in 
said  decree  by  and  through  the  Standard  Oil  Company  of  New  Jersey, 
the  stockholders  of  the  Standard  Oil  Company  of  New  Jersey  have  re- 
sumed the  ownership  of  the  stock  of  said  subsidiary  companies,  through 
a  pretended  distribution  thereof  from  the  Standard  Oil  Company  of 
New  Jersey,  and  are  continuing  to  control  all  of  the  subsidiary  com- 
panies through  their  ownership  of  the  majority  shares  of  the  said  sub- 
sidiary companies,  including  the  Waters-Pierce  Oil  Company,  just  as 
they  had  prior  to  the  organization  of  the  Standard  Oil  Company  of 
New  Jersey,  as  described  in  section  1  of  said  decree,  hereinbefore  set 
forth  .1 

And  that  the  present  action  of  relators,  supported  by  the  shares 
of  stock  formerly  owned  by  the  Standard  Oil  Company  of  New 
Jersey,  is  an  effort  upon  the  part  of  the  defendants  in  the  aforesaid 
cause  to  assume  control  of  the  Waters-Pierce  Oil  Company  and  draw 
it  into  a  continuation  of  the  conspiracy  enjoined  by  that  decree  and 
compel  it,  through  and  by  an  understanding  and  agreement  and 
concerted  action,  by  and  between  the  holders  of  the  majority  of 
the  shares  of  stock  of  said  subsidiary  companies,  to  continue  to 
violate  the  Federal  law  and  the  said  decree  of  the  Federal  Court. 

That  the  shares  of  stock  set  forth  in  the  alternative  writ  herein 
are  the  same  shares  of  stock  formerly  held  by  the  Standard  Oil 
Company  of  New  Jersey,  and  are  now  being  attempted  to  be  voted 
to  aid  the  furtherance  of  the  conspiracy  enjoined  by  the  decree  afore- 
said; that  the  said  individual  defendants  named  in  said  decree  in 
association  with  other  confederates  and  allies  have  combined  and 
confederated  in  manner  and  form  as  aforesaid,  viz,  through  the 
majority  ownership  of  stock  in  all  the  subsidiary  companies  men- 
tioned in  said  decree,  to  control  in  defiance  of  said  decree,  said  sub- 
sidiary corporations,  in  combination  and  restraint  of  trade  and  for 
the  purpose  of  attaining  the  monopoly  enjoined  in  said  decree;  that 
said  pretended  dissolution  is  a  farce,  a  disguise  and  a  pretext,  and  has 
made  no  change  whatsoever  in  the  relation  of  said  companies  or  their 
direction,  management  and  control.1 

Wherefore,  respondent  says  that  the  jurisdiction  and  process  of 
this  Court  should  not  be  given  to  aid  the  relators  and  their  con- 
federates in  a  disguised  attempt  to  evade  the  laws  of  the  United 
States  and  the  decrees  hereinbefore  referred  to. 
1  Italics  are  the  Editor's. 


524  Industrial  Combinations  and  Trusts 

XII 

These  respondents  further  making  return  to  the  said  alterna- 
tive writ  of  mandamus  say  that  this  Court  has  no  jurisdiction  to 
entertain  this  proceeding  or  grant  the  peremptory  writ  herein,  for 
that  the  relators  have  another  summary  remedy,  provided  by  the 
statutes  of  this  State,  to  contest  their  election  as  directors  of  the 
Waters-Pierce  Oil  Company. 

And  respondents  in  further  return  deny  each  and  every  allega- 
tion in  the  alternative  writ  not  hereinbefore  admitted  or  denied. 
Wherefore,  respondents  say  that  the  votes  and  proxies  offered 
to  be  voted  by  the  said  Taylor  and  Van  Beuren  and  the  votes 
offered  to  be  voted  by  relators  were  not  lawful  votes  at  said  elec- 
tion, and  were  properly  rejected  by  these  respondents;  and  re- 
spondents, having  made  full  return  to  said  alternative  writ  of 
mandamus,  pray  to  be  hence  discharged  and  to  recover  their  costs 
herein  most  wrongfully  expended. 

Boyle  &  Priest, 
Judson,  Green  and  Henry, 
Fordyce,  Holliday  &  White, 
Attorneys  for  Respondents. 
John  D.  Johnson, 
Of  Counsel. 


CHAPTER  XVI 

PROPOSED  METHODS  OF  DEALING  WITH  THE  TRUST  PROBLEM 

In  this  concluding  chapter,  there  have  been  brought  together 
the  views  of  certain  gentlemen  as  to  the  methods  of  dealing  with 
the  Trusts  in  the  United  States.  Competition  has  its  advocates 
as  well  as  combination.  The  exhibits  have  been  selected  with  the 
idea  of  showing  that  there  are  two  distinct  lines  of  thought  in  re- 
gard to  the  Trusts;  one  looking  to  Government  supervision,  the 
other  to  competition  as  an  ultimate  solution  of  the  problem.  It 
has  of  course  been  possible  to  include  the  ideas  of  only  a  compara- 
tively few  men,  but  the  editor  believes  that  the  views  here  ex- 
pressed are  fairly  representative. — Ed. 

Exhibit  i 

president  william  howard  taft  2 

new  remedies  suggested. 

Much  is  said  of  the  repeal  of  this  statute  and  of  constructive 
legislation  intended  to  accomplish  the  purpose  and  blaze  a  clear 
path  for  honest  merchants  and  business  men  to  follow.  It  may  be 
that  such  a  plan  will  be  evolved,  but  I  submit  that  the  discussions 
which  have  been  brought  out  in  recent  days  by  the  fear  of  the  con- 
tinued execution  of  the  antitrust  law  have  produced  nothing  but 
glittering  generalities  and  have  offered  no  line  of  distinction  or 
rule  of  action  as  definite  and  as  clear  as  that  which  the  Supreme 
Court  itself  lays  down  in  enforcing  the  statute. 

SUPPLEMENTAL  LEGISLATION  NEEDED — NOT  REPEAL  OR  AMENDMENT. 

I  see  no  objection — and  indeed  I  can  see  decided  advantages — 
in  the  enactment  of  a  law  which  shall  describe  and  denounce 
methods  of  competition  which  are  unfair  and  are  badges  of  the  un- 
lawful purpose  denounced  in  the  antitrust  law.  The  attempt  and 
purpose  to  suppress  a  competitor  by  underselling  him  at  a  price  so 

1  Message  to  Congress  of  December  5,  1911.  Congressional  Record,  626! 
Cong.  2d  Sess.  Vol.  48,  pp.  25-26. 

525 


526  Industrial  Combinations  and  Trusts 

unprofitable  as  to  drive  him  out  of  business,  or  the  making  of  ex- 
clusive contracts  with  customers  under  which  they  are  required  to 
give  up  association  with  other  manufacturers,  and  numerous  kin- 
dred methods  for  stifling  competition  and  effecting  monopoly, 
should  be  described  with  sufficient  accuracy  in  a  criminal  statute  on 
the  one  hand  to  enable  the  Government  to  shorten  its  task  by  pros- 
ecuting single  misdemeanors  instead  of  an  entire  conspiracy,  and, 
on  the  other  hand,  to  serve  the  purpose  of  pointing  out  more  in 
detail  to  the  business  community  what  must  be  avoided. 

FEDERAL   INCORPORATION   RECOMMENDED. 

In  a  special  message  to  Congress  on  January  7,  19 10, 1  ventured 
to  point  out  the  disturbance  to  business  that  would  probably  at- 
tend the  dissolution  of  these  offending  trusts.    I  said: 

But  such  an  investigation  and  possible  prosecution  of  corporations  whose 
prosperity  or  destruction  affects  the  comfort  not  only  of  stockholders  but  of 
millions  of  wage  earners,  employees,  and  associated  tradesmen  must  necessarily 
tend  to  disturb  the  confidence  of  the  business  community,  to  dry  up  the  now 
flowing  sources  of  capital  from  its  places  of  hoarding,  and  produce  a  halt  in  our 
present  prosperity  that  will  cause  suffering  and  strained  circumstances  among 
the  innocent  many  for  the  faults  of  the  guilty  few.  The  question  which  I  wish 
in  this  message  to  bring  clearly  to  the  consideration  and  discussion  of  Congress 
is  whether,  in  order  to  avoid  such  a  possible  business  danger,  something  cannot 
be  done  by  which  these  business  combinations  may  be  offered  a  means,  without 
great  financial  disturbance,  of  changing  the  character,  organization,  and  extent 
of  their  business  into  one  within  the  lines  of  the  law,  under  Federal  control  and 
supervision,  securing  compliance  with  the  antitrust  statute. 

Generally,  in  the  industrial  combinations  called  "trusts"  the  principal  busi- 
ness is  the  sale  of  goods  in  many  States  and  in  foreign  markets;  in  other  words, 
the  interstate  and  foreign  business  far  exceeds  the  business  done  in  any  one 
State.  This  fact  will  justify  the  Federal  Government  in  granting  a  Federal 
charter  to  such  a  combination  to  make  and  sell  in  interstate  and  foreign  com- 
merce the  products  of  useful  manufacture  under  such  limitations  as  will  secure 
a  compliance  with  the  antitrust  law.  It  is  possible  so  to  frame  a  statute  that 
while  it  offers  protection  to  a  Federal  company  against  harmful,  vexatious,  and 
unnecessary  invasion  by  the  States,  it  shall  subject  it  to  reasonable  taxation 
and  control  by  the  States  with  respect  to  its  purely  local  business.   *  *  * 

Corporations  organized  under  this  act  should  be  prohibited  from  acquiring 
and  holding  stock  in  other  corporations  (except  for  special  reasons,  upon  ap- 
proval by  the  proper  Federal  authority),  thus  avoiding  the  creation  under 
national  auspices  of  the  holding  company  with  subordinate  corporations  in 
different  States,  which  has  been  such  an  effective  agency  in  the  creation  of  the 
great  trusts  and  monopolies. 

If  the  prohibition  of  the  antitrust  act  against  combinations  in  restraint  of 
trade  is  to  be  effectively  enforced,  it  is  essential  that  the  National  Government 
shall  provide  for  the  creation  of  national  corporations  to  carry  on  a  legitimate 
business  throughout  the  United  States.    The  conflicting  laws  of  the  different 


Methods  of  Dealing  with  the  Trust  Problem    527 

States  of  the  Union  with  respect  to  foreign  corporations  make  it  difficult,  if  not 
impossible,  for  one  corporation  to  comply  with  their  requirements  so  as  to  carry 
on  business  in  a  number  of  different  states. 

I  renew  the  recommendation  of  the  enactment  of  a  general  law 
providing  for  the  voluntary  formation  of  corporations  to  engage  in 
trade  and  commerce  among  the  States  and  with  foreign  nations. 
Every  argument  which  was  then  advanced  for  such  a  law,  and 
every  explanation  which  was  at  that  time  offered  to  possible  ob- 
jections, have  been  confirmed  by  our  experience  since  the  enforce- 
ment of  the  antitrust  statute  has  resulted  in  the  actual  dissolution 
of  active  commercial  organizations. 

It  is  even  more  manifest  now  than  it  was  then  that  the  denuncia- 
tion of  conspiracies  in  restraint  of  trade  should  not  and  does  not 
mean  the  denial  of  organizations  large  enough  to  be  intrusted 
with  our  interstate  and  foreign  trade.  It  has  been  made  more 
clear  now  than  it  was  then  that  a  purely  negative  statute  like  the 
antitrust  law  may  well  be  supplemented  by  specific  provisions  for 
the  building  up  and  regulation  of  legitimate  national  and  foreign 
commerce. 

government  administrative  experts  needed  to  aid  courts 
in  trust  dissolutions. 

The  drafting  of  the  decrees  in  the  dissolution  of  the  present 
trusts,  with  a  view  to  their  reorganization  into  legitimate  corpora- 
tions, has  made  it  especially  apparent  that  the  courts  are  not  pro- 
vided with  the  administrative  machinery  to  make  the  necessary 
inquiries  preparatory  to  reorganization,  or  to  pursue  such  inquiries, 
and  they  should  be  empowered  to  invoke  the  aid  of  the  Bureau  of 
Corporations  in  determining  the  suitable  reorganization  of  the 
disintegrated  parts.  The  circuit  court  and  the  Attorney  General 
were  greatly  aided  in  framing  the  decree  in  the  Tobacco  Trust 
dissolution  by  an  expert  from  the  Bureau  of  Corporations. 

FEDERAL  CORPORATION  COMMISSION   PROPOSED. 

I  do  not  set  forth  in  detail  the  terms  and  sections  of  a  statute  which 
might  supply  the  constructive  legislation  permitting  and  aiding  the 
formation  of  combinations  of  capital  into  Federal  corporations.  They 
should  be  subject  to  rigid  rules  as  to  their  organization  and  procedure, 
including  effective  publicity,  and  to  the  closest  supervision  as  to  the 
issue  of  stock  and  bonds  by  an  executive  bureau  or  commission  in  the 
Department  of  Commerce  and  Labor,  to  which  in  times  of  doubt 


528  Industrial  Combinations  and  Trusts 

they  might  well  submit  their  proposed  plans  for  future  business.  It 
must  be  distinctly  understood  that  incorporation  under  a  Federal  law 
could  not  exempt  the  company  thus  formed  and  its  incorporators 
and  managers  from  prosecution  under  the  antitrust  law  for  subse- 
quent illegal  conduct,  but  the  publicity  of  its  procedure  and  the  op- 
portunity for  frequent  consultation  with  the  bureau  or  commission  in 
charge  of  the  incorporation  as  to  the  legitimate  purpose  of  its  trans- 
actions would  offer  it  as  great  security  against  successful  prosecutions 
for  violations  of  the  law  as  would  be  practical  or  wise. 

Such  a  bureau  or  commission  might  well  be  invested  also  with  the 
duty  already  referred  to,  of  aiding  courts  in  the  dissolution  and  re- 
creation of  trusts  within  the  law.  It  should  be  an  executive  tribunal 
of  the  dignity  and  power  of  the  Comptroller  of  the  Currency  or  the 
Interstate  Commerce  Commission,  which  now  exercise  supervisory 
power  over  important  classes  of  corporations  under  Federal  regula- 
tion. 

The  drafting  of  such  a  Federal  incorporation  law  would  offer  ample 
opportunity  to  prevent  many  manifest  evils  in  corporate  manage- 
ment to-day,  including  irresponsibility  of  control  in  the  hands  of 
the  few  who  are  not  the  real  owners. 

incorporation  voluntary. 

I  recommend  that  the  Federal  charters  thus  to  be  granted  shall  be 
voluntary,  at  least  until  experience  justifies  mandatory  provisions. 
The  benefit  to  be  derived  from  the  operation  of  great  businesses 
under  the  protection  of  such  a  charter  would  attract  all  who  are  anx- 
ious to  keep  within  the  lines  of  the  law.  Other  large  combinations 
that  fail  to  take  advantage  of  the  Federal  incorporation  will  not  have 
a  right  to  complain  if  their  failure  is  ascribed  to  unwillingness  to  sub- 
mit their  transactions  to  the  careful  official  scrutiny,  competent  su- 
pervision, and  publicity  attendant  upon  the  enjoyment  of  such  a 
charter. 

only  supplemental  legislation  needed. 

The  opportunity  thus  suggested  for  Federal  incorporation,  it 
seems  to  me,  is  suitable  constructive  legislation  needed  to  facilitate 
the  squaring  of  great  industrial  enterprises  to  the  rule  of  action  laid 
down  by  the  antitrust  law.  This  statute  as  construed  by  the  Su- 
preme Court  must  continue  to  be  the  line  of  distinction  for  legitimate 
business.  It  must  be  enforced,  unless  we  are  to  banish  individualism 
from  all  business  and  reduce  it  to  one  common  system  of  regulation  or 


Methods  of  Dealing  with  the  Trust  Problem  529 

control  of  prices  like  that  which  now  prevails  with  respect  to  public 
utilities,  and  which  when  applied  to  all  business  would  be  a  long  step 
toward  State  socialism.1 

importance  of  the  antitrust  act. 

The  antitrust  act  is  the  expression  of  the  effort  of  a  freedom-loving 
people  to  preserve  equality  of  opportunity.  It  is  the  result  of  the 
confident  determination  of  such  a  people  to  maintain  their  future 
growth  by  preserving  uncontrolled  and  unrestricted  the  enterprise 
of  the  individual,  his  industry,  his  ingenuity,  his  intelligence,  and  his 
independent  courage. 

For  20  years  or  more  this  statute  has  been  upon  the  statute  book. 
All  knew  its  general  purpose  and  approved.  Many  of  its  violators 
were  cynical  over  its  assumed  impotence.  It  seemed  impossible  of 
enforcement.  Slowly  the  mills  of  the  courts  ground,  and  only  grad- 
ually did  the  majesty  of  the  law  assert  itself.  Many  of  its  statesmen 
authors  died  before  it  became  a  living  force,  and  they  and  others  saw 
the  evil  grow  which  they  had  hoped  to  destroy.  Now  its  efficacy  is 
seen;  now  its  power  is  heavy;  now  its  object  is  near  achievement. 
Now  we  hear  the  call  for  its  repeal  on  the  plea  that  it  interferes  with 
business  prosperity,  and  we  are  advised  in  most  general  terms  how 
by  some  other  statute  and  in  some  other  way  the  evil  we  are  just 
stamping  out  can  be  cured  if  we  only  abandon  this  work  of  20  years 
and  try  another  experiment  for  another  term  of  years. 

It  is  said  that  the  act  has  not  done  good.  Can  this  be  said  in  the 
face  of  the  effect  of  the  Northern  Securities  decree?  That  decree 
was  in  no  way  so  drastic  or  inhibitive  in  detail  as  either  the  Standard 
Oil  decree  or  the  Tobacco  decree;  but  did  it  not  stop  for  all  time  the 
then  powerful  movement  toward  the  control  of  all  the  railroads  of 
the  country  in  a  single  hand?  Such  a  one-man  power  could  not  have 
been  a  healthful  influence  in  the  Republic,  even  though  exercised 
under  the  general  supervision  of  an  interstate  commission. 

Do  we  desire  to  make  such  ruthless  combinations  and  monopolies 
lawful?  When  all  energies  are  directed,  not  toward  the  reduction  of 
the  cost  of  production  for  the  public  benefit  by  a  healthful  competi- 
tion, but  toward  new  ways  and  means  for  making  permanent  in  a 
few  hands  the  absolute  control  of  the  conditions  and  prices  prevailing 
in  the  whole  field  of  industry,  then  individual  enterprise  and  effort 
will  be  paralyzed  and  the  spirit  of  commercial  freedom  will  be  dead. 
The  White  House,  December  5,  iqii  Win.  H.  Taft 

'  Italics  are  the  Editor's. 


5^0  Industrial  Combinations  and  Trusts 

Exhibit  2 

senator  robert  w.  la  eollette  2 

A  BILL  To  further  protect  trade  and  commerce  against  unlawful 
restraints  and  monopolies. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
I  Tnited  States  of  America  in  Congress  assembled,  That  the  act  approved 
July  second,  eighteen  hundred  and  ninety,  entitled  "An  act  to  pro- 
tect trade  and  commerce  against  unlawful  restraints  and  monop- 
olies," is  hereby  amended  by  adding  thereto  the  following: 

"Sec.  9.  Whenever  in  any  suit  or  proceeding,  civil  or  criminal, 
brought  under  or  involving  the  provisions  of  this  act,  it  shall  appear 
that  any  contract,  combination  in  the  form  of  trust  or  otherwise,  or 
conspiracy  was  entered  into,  existed,  or  exists,  which  was  or  is  in 
any  respect  or  to  any  extent  in  restraint  of  trade  or  commerce  among 
the  several  States  or  with  foreign  nations,  the  burden  of  proof  to 
establish  the  reasonableness  of  such  restraint  shall  be  upon  the  party 
who  contends  that  said  restraint  of  trade  is  reasonable. 

"Sec.  10.  Whenever  in  any  suit  or  proceeding,  civil  or  criminal, 
brought  under  or  involving  the  provisions  of  this  act  it  shall  appear 
that  any  contract,  combination  in  the  form  of  trust  or  otherwise,  or 
conspiracy  was  entered  into,  existed,  or  exists,  which  was  or  is  in  any 
respect  or  to  any  extent  in  restraint  of  trade  or  commerce  among  the 
several  States  or  with  foreign  nations,  such  restraint  shall  be  con- 
clusively deemed  to  have  been  or  to  be  unreasonable  and  in  violation 
of  the  provisions  of  this  act  as  to  any  party  thereto — 

"A.  Who,  in  carrying  on  any  business  to  which  such  contract, 
combination,  or  conspiracy  relates  or  in  connection  therewith — 

"(a)  As  the  vendor,  lessor,  licensor,  or  bailor,  of  any  article  at- 
tempts to  restrain  or  prevent  in  any  manner,  either  directly  or  in- 
directly, any  vendee,  lessee,  licensee,  or  bailee  from  purchasing,  leas- 
ing, licensing,  or  obtaining  such  article,  or  any  other  article  from  some 
other  person,  or  using  such  article  or  any  other  article  obtained  from 
some  other  person,  whether  such  attempt  (first)  be  made  by  an  agree- 
ment or  provision,  express  or  implied,  against  such  purchase,  lease, 
license,  or  use,  or  (second)  be  made  by  a  condition  in  the  sale,  lease, 
license,  or  bailment  against  such  purchase,  lease,  license,  or  use,  or 

2  Bill  introduced  by  Senator  La  Follette.  Senate  3276,  62nd  Cong.  1st  Sess. 
Cf.  op.  cit.  Senate  Committee  on  Interstate  Commerce  pp.  1778-82.  The  italics 
are  as  reprinted  in  those  hearings. — Ed. 


Methods  of  Dealing  with  the  Trust  Problem     531 

(third)  be  made  by  imposing  any  restriction  upon  the  use  of  the  ar- 
ticle so  sold,  leased,  licensed,  or  bailed,  or  (fourth)  be  made  by  making 
in  the  price,  rental,  or  license  any  discrimination  based  upon  whether 
the  vendee,  lessee,  licensee,  or  bailee  purchases,  hires,  or  becomes  a 
licensee  of,  or  uses  any  article  made,  sold,  licensed,  leased,  or  furnished 
by  some  other  person,  or  (fifth)  be  made  in  any  other  manner  except 
the  ordinary  solicitation  of  trade; 

"  (b)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  at- 
tempts to  prevent  or  restrain  competition  by  making  in  the  price, 
rental,  or  royalty,  or  other  terms  of  any  such  sale,  lease,  license,  or 
bailment  any  discrimination  based  upon  whether  the  vendee,  lessee, 
licensee,  or  bailee  purchases,  leases,  licenses,  or  takes  on  bailment 
from  him  articles  of  a  particular  quantity  or  aggregate  price; 

"(c)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  at- 
tempts to  prevent  or  restrain  competition  either  by  refusing  to  supply 
to  any  other  person  requesting  the  same  any  article  sold,  leased, 
licensed,  bailed,  or  otherwise  dealt  in  or  furnished  by  him,  or  by  con- 
senting to  supply  the  same  only  upon  terms  or  conditions  in  some  re- 
spect less  favorable  than  are  accorded  to  any  other  person; 

"(d)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  at- 
tempts to  prevent  or  restrain  competition  by  supplying  or  offering 
to  supply  to  any  person  or  persons  doing  business  in  any  particular 
territory  articles  sold,  leased,  licensed,  bailed,  or  otherwise  dealt  in 
or  furnished  by  him,  upon  terms  or  conditions  in  any  respect  more 
favorable  than  are  accorded  by  him  to  his  other  customers; 

"  (e)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  at- 
tempts to  restrain  or  prevent  competition  by  making  any  contract 
or  arrangement  under  which  he  shall  not  sell,  lease,  or  license  any 
article  in  which  he  deals  to  certain  persons  or  class  of  persons,  or  to 
those  doing  business  within  certain  districts  or  territory; 

"  (/)  U  a  natural  person  does  business  directly  or  indirectly  under 
any  name  other  than  his  own  or  that  of  a  partnership  of  which  he  is  a 
member;  or  if  a  corporation  docs  business  under  any  name  other  than 
its  own  corporate  name;  or  if  there  be  any  concealment  or  misrepresenta- 
tion as  to  the  ownership  or  control  of  such  business;  or  if  there  be  any 
misrepresentation  as  to  the  identity  of  the  manufacturer,  producer,  vendor, 
or  licensor  of  any  article  sold  or  leased. 

"  (g)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  attempts 
to  prevent  or  destroy  competition  by  supplying  or  offering  to  supply  such 
article  without  charge  or  at  prices  at  or  below  the  cost  of  production  and 
distribution. 


532  Industrial  Combinations  and  Trusts 

"  (//)  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  spies  upon 
the  business  of  any  competitor  or  secures  information  concerning  his 
business,  either  through  bribery  of  an  agent  or  employee  of  such  com- 
petitor or  of  any  Stale  or  Federal  official,  or  by  any  illegal  means  what- 
soever secures  information  concerning  the  competitive  business. 

"[f]  (/')  As  the  vendor,  lessor,  licensor,  or  bailor  of  any  article 
attempts  to  prevent  or  restrain  competition  by  the  use  of  any  unfair 
or  oppressive  methods  of  competition;  or 

"B.  Who  has  been  sentenced,  or  who  controls  or  is  controlled  by 
or  is  a  member  of  or  forms  a  part  of  any  corporation  or  association 
which  has  been  sentenced  under  the  act  to  regulate  commerce,  ap- 
proved February  fourth,  eighteen  hundred  and  eighty -seven,  or  any 
amendment  thereof,  for  any  act  or  thing  relating  to  any  trade  or 
business  affected  by  such  restraint  done  or  occurring  after  this  act 
goes  into  effect. 

"The  foregoing  enumeration  of  acts,  conduct,  methods,  and  de- 
vices which  it  is  herein  declared  shall  each  conclusively  be  deemed 
unreasonable  does  not  include,  and  shall  not  be  construed  to  exclude 
or  as  intended  to  exclude,  any  other  acts,  conduct,  methods,  or  de- 
vices which  are  or  may  be  unreasonable. 

"The  provisions  of  clause  (a)  of  this  section  shall  not  apply  to  any 
case  where  the  vendor,  lessor,  licensor,  or  bailor  of  any  machine,  tool, 
implement,  or  appliance  protected  by  lawful  patent  rights  vested  in 
such  vendor,  lessor,  licensor,  or  bailor  requires  the  purchaser,  lessee, 
licensee,  or  bailee  to  purchase  or  hire  from  his  component  or  con- 
stituent parts  of  such  machine,1  tool,  implement,  or  appliance  which 
such  vendee,  lessee,  licensee,  or  bailee  may  thereafter  acquire  during 
the  continuance  of  such  patent  right,  nor  shall  any  of  the  provisions 
of  this  section  apply  to  the  mere  appointment  of  sole  agents  to  sell, 
lease,  license,  bail,  or  furnish  any  article. 

"Sec.  ii.  Whenever  in  any  suit  or  proceeding,  civil  or  criminal, 
brought  under  or  involving  the  provisions  of  this  act,  it  shall  appear 
that  any  contract,  combination  in  the  form  of  trust  or  otherwise,  or 
conspiracy  was  entered  into,  existed,  or  exists  which  was  or  is  in  any 
respect  or  to  any  extent  in  restraint  of  trade  or  commerce  among 
the  several  States  or  with  foreign  nations,  there  shall  at  once  arise  a 
rebuttable  presumption  that  such  restraint  was  or  is  unreasonable — 

"  (a)  If  in  the  business  in  connection  with  which  said  restraint  of 
trade  existed  or  exists,  the  person  or  persons  engaged  in  such  contract, 
combination,  or  conspiracy  controlled  or  controls,  or  is  a  part  of 
1  This  construction  is  thus  in  the  original. — Ed. 


Methods  of  Dealing  with  the  Trust  Problem    533 

any  corporation  or  association  which  controlled  or  controls  at  the 
time  such  restraint  is  alleged  to  have  existed  or  to  exist,  more  than 
forty  per  centum  in  value  of  the  total  quantity  sold  in  the  United 
States,  or  more  than  forty  per  centum  in  value  of  the  total  quantity 
sold  in  the  part  or  district  of  the  United  States  to  which  the  business 
of  such  person,  corporation,  or  association  extends,  of  any  article 
dealt  in  by  such  person,  the  trade  in  which  is  affected  by  such  re- 
straint. 

"(b)  If  the  vendor,  lessor,  licensor,  or  bailor  of  any  article  with 
a  view  to  preventing  competition  fixes  an  unreasonably  high  price 
upon  any  article  which  enters  into  the  manufacture  of  an  article 
which  is  used  in  producing  any  other  article  sold,  leased,  licensed, 
bailed,  or  otherwise  furnished  by  him,  the  trade  in  which  is  affected 
by  such  restraint. 

"Sec.  12.  Whenever  in  any  suit  or  proceeding,  civil  or  criminal, 
brought  by  or  on  behalf  of  the  Government  under  the  provisions  of 
this  act  a  final  judgment  or  decree  shall  have  been  rendered  to  the 
effect  that  a  defendant  in  violation  of  the  provisions  of  this  act  has 
entered  into  a  contract,  combination  in  form  of  trust  or  otherwise, 
or  conspiracy  in  restraint  of  trade  or  commerce  among  the  several 
States  or  with  foreign  nations,  or  has  monopolized  or  attempted  to 
monopolize  or  combined  with  any  person  or  persons  to  monopolize 
any  part  of  the  trade  or  commerce  among  the  several  States  or  with 
foreign  nations,  the  existence  of  such  illegal  contract,  combination, 
or  conspiracy  in  restraint  of  trade  or  of  such  attempt  or  conspiracy 
to  monopolize,  shall  to  the  full  extent  to  which  the  facts  and  issues 
of  fact  or  law  were  litigated  and  to  the  full  extent  to  which  such  fact, 
judgment,  or  decree  would  constitute  in  any  other  proceeding  an 
estoppel  as  between  the  Government  and  such  person,  constitute 
as  against  such  defendant  conclusive  evidence  of  the  same  facts  and 
be  conclusive  as  to  the  same  issues  of  law  in  favor  of  any  other  party 
in  any  other  proceeding  brought  under  or  involving  the  provisions 
of  this  act. 

"Sec.  13.  In  any  civil  proceeding  begun  under  this  act  by  the 
United  States  or  the  Attorney  General  or  any  district  attorney 
thereof  in  which  a  judgment  or  decree  interlocutory  or  final  has  been 
entered  that  the  defendants,  or  any  of  them,  have  been  guilty  of 
conduct  prohibited  by  section  one,  section  two,  or  section  three  of 
this  act,  if  it  shall  appear  to  the  court  by  intervening  petition  of 
any  other  person  or  persons  that  such  person  or  persons  claims  to 
have  been  injured  by  such  conduct,  such  person  or  persons  shall  be 


534  Industrial  Combinations  and  Trusts 

admitted  as  a  party  to  the  suit  to  establish  such  injury,  if  any,  and 
the  damages  resulting  therefrom,  and  such  person  or  persons  may 
have  judgment  and  execution  therefor  or  any  other  relief  to  the 
same  extent  as  if  an  independent  suit  had  been  brought  under  sec- 
tion seven  of  this  act.  In  the  course  of  such  proceeding  the  court 
may  grant  orders  of  attachment  or  may  appoint  a  receiver  or  may 
take  such  other  proceeding  conformable  to  the  usual  practices  in 
equity  as  to  insure  the  satisfaction  of  any  claim  so  presented  and  the 
protection  of  the  petitioner's  rights.  Nothing  done  under  this  sec- 
tion shall  be  permitted  to  delay  the  final  disposition  of  said  prin- 
cipal proceeding  in  all  other  respects,  and  nothing  contained  in  this 
section  shall  be  taken  to  abridge  the  right  of  any  person  or  persons 
to  bring  a  separate  and  independent  suit  as  provided  in  section  seven 
of  this  act;  but  if  any  person  proceeds  both  by  intervening  petition 
and  by  independent  suit  the  court  may  order  an  election. 

"Sec.  14.  Such  intervening  petition  or  an  original  suit  for  the 
same  cause  under  section  seven  of  this  Act  shall  not  be  barred  by 
lapse  of  time,  if  begun  within  three  years  after  final  decree  or  judg- 
ment entered  either  in  a  civil  or  in  a  criminal  proceeding  brought 
by  the  United  States  or  the  Attorney  General  or  any  district  attor- 
ney thereof  establishing  such  violation  by  the  defendant  or  defend- 
ants of  section  one,  section  two,  or  section  three:  Provided,  That  the 
claim  on  which  such  intervening  petition  or  original  suit  is  founded 
was  not  already  so  barred  at  the  time  of  the  passage  of  this  act. 

"Sec.  15.  That  whenever  after  the  institution  of  proceedings  in  equity 
under  section  four  of  this  act  it  shall  appear  to  the  court  in  any  prelim- 
inary hearing  that  there  is  reason  to  believe,  or  upon  final  hearing  the 
the  court  shall  find,  that  any  contract,  combination  in  the  form  of  trust 
or  otherwise,  or  conspiracy  was  entered  into,  existed,  or  exists,  which 
was,  or  is  in  any  respect  or  to  any  extent,  in  restraint  of  trade  or  com- 
merce among  the  several  States  or  with  foreign  nations,  and  that  as  a 
result  thereof  the  defendants,  or  any  of  them,  have  the  control  of  supply- 
ing the  market  with  any  machine,  tool,  or  other  article,  whether  raw  ma- 
terial or  manufactured,  reasonably  required  in  the  manufacture  or  pro- 
duction of  any  other  article  or  for  general  consumption  and  use,  and  that 
no  adequate  opportunity  exists  to  immediately  substitide  another  article 
therefor  of  equal  utility,  the  court  shall  have  power  to  make  such  order, 
by  injunction  or  otherwise  as  it  may  deem  necessary,  as  will  secure  to 
purchasers  or  users  of  such  article  full  opportunity  to  continue  to  acquire 
or  use  the  same  upon  payment  of  a  reasonable  compensation,  to  be  fixed 
by  the  court  in  such  order,  until  some  other  adequate  substitute  can  be 


Methods  of  Dealing  with  the  Trust  Problem    535 

provided:  Provided,  however,  That  in  so  jar  as  at  the  time  of  the  appli- 
cation for  such  order,  such  machine,  tool,  or  article  is  being  supplied 
to  any  person  under  any  contract,  the  amount  of  compensation  therefor 
to  be  paid  him  under  said  order  shall  be  that  actually  payable  in  accord- 
ance with  the  terms  of  such  contract,  unless  or  until  such  contract  is 
found  or  declared  to  be  void  or  expires. 

"Sec.  16.  That  whenever  in  any  proceedings  under  section  four  of 
this  act  any  contract,  combination,  or  conspiracy  has  been  adjudged 
illegal  under  section  one  or  section  two  of  this  act  the  court  before  which 
such  proceedings  are  pending  shall  have  jurisdiction — 

"  (a)  To  partition  any  property  owned  under  any  contract  or  by  any 
combination  or  pursuant  to  any  conspiracy  (and  being  the  subject  thereof) 
mentioned  in  section  one  and  section  two  of  this  act  in  severalty  among 
the  owners  thereof,  or  groups  of  the  owners  thereof,  and  if  the  owners 
include  one  or  more  corporations,  among  the  several  stockholders  thereof, 
or  among  groups  of  the  several  stockholders  thereof,  all  in  proportion 
to  their  respective  interests. 

"  (b)  If  sales  of  such  property  are  necessary  or  proper,  either  to  pay 
encumbrances  thereon  or  to  recreate  conditions  in  harmony  with  the 
law,  to  sell  such  property  as  a  whole  or  in  parcels;  and  the  court  may 
forbid  the  said  owners,  and  if  the  said  owners  include  one  or  more  cor- 
porations, the  stockholders  thereof,  from  purchasing  at  such  sales,  and 
may  prescribe  the  conditions  on  which  any  purchase  may  be  made  by 
any  persons  or  corporations  whatsoever. 

"(c)  To  make  such  restraining  orders  or  prohibitions  as  may  be 
necessary  or  proper  to  recreate  conditions  in  harmony  with  the  law,  in- 
cluding prohibitions  of  any  acts,  conduct,  methods,  or  devices  which  are 
enumerated  herein  as  indicating  unreasonable  restraint. 

"  (d)  To  declare  void  as  against  the  defendants,  or  any  of  them,  any 
contract  entered  into  as  a  part  of  the  contract,  combination,  or  conspiracy 
found  to  be  in  restraint  of  trade. 

"  The  relief  granted  in  this  section  shall  be  in  addition  to,  and  not 
exclusive  of  other  relief  permitted  by  law  or  by  this  act. 

"Sec.  ij.  That  whenever  a  proceeding  in  equity  has  been  instituted 
under  section  four  of  this  act,  any  person  who  shall  be  injured  or  is 
threatened  with  injury  in  his  business  or  property  by  any  other  person 
or  corporation  by  reason  of  anything  forbidden  or  declared  to  be  un- 
lawful  by  this  act,  and  any  State  of  the  United  States,  may  at  any  time 
intervene  in  said  suit  to  protect  his  interests,  or  if  the  intervenor  be  a 
State,  the  interests  of  the  citizens  of  such  State,  and  may,  after  final 
decree  in  said  case,  petition  said  court  for  protection  or  redress  in  case 


536  Industrial  Combinations  and  Trusts 

of  any  violation  oj  said  decree,  imd  the  court  shall  have  power  to  take 
such  action  as  may  be  appropriate  in  the  premises. 

"Sec.  iS.  Whenever  in  a  proceeding  under  section  jour  of  this  act 
it  shall  be  alleged  that  the  defendants,  or  any  of  them,  have  entered  into 
a  contract,  combination  in  the  form  of  trust  or  otlierwise,  or  conspiracy, 
or  that  a  conspiracy  between  them,  or  any  of  them,  existed  or  exists  which 
was  or  is,  in  any  respect  or  to  any  extent,  in  restraint  of  trade  or  com- 
merce among  the  several  States  or  with  foreign  nations,  no  department 
or  official  of  the  United  States  shall,  unless  and  until  such  allegation 
shall  be  found  on  final  decree  to  be  unfounded,  enter  into  any  contract 
with  any  such  defendant  for  the  purchase  or  supply  of  any  article,  nor 
purchase  from  any  such  defendant  or  any  other  person  any  article  manu- 
factured by  any  such  defendant  or  any  subsidiary  or  controlled  company, 
association,  or  firm  except  so  far  as  required  so  to  do  by  some  existing 
contract,  unless — 

"First.  The  article  so  manufactured  is  reasonably  necessary  for  the 
purposes  of  the  Government,  and  no  adequate  opportunity  exists  to 
substitute  another  article  of  equal  utility  at  a  reasonable  price;  and 

"Second.  The  officer  authorized  to  make  contracts  or  purchases  of 
that  nature  shall,  after  full  investigation,  and  before  such  contract  or 
purchase  is  made,  have  certified  in  writing  to  the  facts  set  forth  in  the 
preceding  paragraph  and  have  filed  with  or  mailed  to  the  Department 
of  Justice  and  the  Commissioner  of  Corporations  copies  of  such  cer- 
tificate. 

"Sec.  iq.  Any  patent  used  in  violation  of  this  act  to  restrain  trade 
or  commerce  among  the  several  States  or  with  foreign  nations,  or  used  in 
violation  of  this  act  in  connection  with  any  contract,  conspiracy,  or  com- 
bination in  restraint  of  such  trade  or  commerce,  shall  be  forfeited  to  the 
United  States  and  annulled,  and  may  be  condemned  by  like  proceedings 
as  is  provided  by  law  for  the  forfeiture,  seizure,  and  condemnation  of 
property  imported  into  the  United  States  contrary  to  law. 

"Whenever,  in  any  proceeding  brought  under  section  four  of  this  act, 
it  shall  appear  that  any  patent  granted  by  the  United  States  has  been  so 
used  to  restrain  trade  or  commerce  among  the  several  States  or  with 
foreign  nations,  or  so  used  in  connection  with  any  contract,  conspiracy, 
or  combination  in  restraint  of  such  trade  or  commerce,  the  court  shall 
have  jurisdiction  to  declare  such  patent  forfeited  to  the  United  States 
and  annulled  upon  petition  therefor  duly  filed  in  said  cause,  and  the 
Attorney  General  shall  forthwith  file  such  petition  praying  for  such  for- 
feiture, and  when  the  defendants  affected  by  such  petition  shall  have 
been  duly  notified  oj  the  filing  oj  the  same  proceedings  thereon  shall 


Methods  of  Dealing  with  the  Trust  Problem    537 

be  given  precedence  over  others  and  in  every  way  expedited  and  be  as- 
signed for  hearing  at  the  earliest  practicable  day." 

Exhibit  3 
senator  john  sharp  williams  l 

A   BILL 

To  prescribe  the  conditions  under  which  corporations  may  en- 
gage in  interstate  commerce  and  to  provide  penalties  for  other- 
wise engaging  in  the  same. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  no  corporation 
shall  engage  in  commerce  between  the  States  or  Territories  or  in  the 
District  of  Columbia  by  the  purchase,  sale,  or  consignment  of  any 
article  of  commerce,  or  otherwise,  directly  or  indirectly — 

First.  Unless  it  is  organized  under  laws  with  a  charter  that — 

(a)  State  the  business  in  which  it  is  authorized  to  engage  and 
the  properties  it  is  authorized  to  acquire; 

(b)  Provide  that  it  shall  have  only  such  powers  as  are  incidental 
to  such  business,  and  shall  not  have  any  power  to  hold  the  stock  of 
any  other  corporation  or  association,  to  do  any  act  or  thing  in  re- 
straint of  trade,  or  to  do  anything  outside  of  the  State  of  its  incor- 
poration which  it  is  not  permitted  to  do  therein; 

(c)  Provide  that  all  its  stockholders  shall  have  an  equal  right 
to  vote  according  to  the  number  of  shares  held  by  them,  respec- 
tively, at  all  meetings  and  for  all  directors,  subject  to  any  general 
limitation  on  the  number  of  votes  that  may  be  cast  by  a  single 
stockholder; 

(d)  Provide  that  no  other  corporation,  association,  or  partner- 
ship shall  have  any  vote  or  voice,  directly  or  indirectly,  in  its  af- 
fairs, and  that  no  person  representing,  directly  or  indirectly,  any 
competing  business  as  owner,  stockholder,  officer,  employee,  or 
agent  thereof  or  otherwise  shall  have  any  such  vote  or  voice,  di- 
rectly or  indirectly  in  its  affairs  or  be  eligible  as  a  director  or  officer 
thereof; 

(e)  Provide  that  its  capital  stock  shall  be  fully  paid  or  payable, 
and  permit  it  to  be  paid  in  property  or  services  only  when  the  value 
of  such  property  or  services  has  been  determined  according  to  the 

1  Bill  introduced  by  Senator  John  Sharp  Williams  Jan.  23, 191 2.  Senate  4747, 
62nd  Cong.  2nd  Sess.  1911-1912. 


53S  Industrial  Combinations  and  Trusts 

fact  upon  competent  and  specific  proof,  under  oath  filed  in  a  desig- 
nated public  office; 

(f)  Limit  its  surplus  at  any  time  to  fifty  per  centum  of  its  out- 
standing capital  stock  and  its  indebtedness  at  any  time  to  not  more 
than  its  outstanding  capital  stock  and  surplus; 

(g)  Provide  that  such  corporation  shall  by  an  amendment  of 
its  charter  be  subject  to  and  comply  with,  and,  if  necessary,  shall 
accept  any  requirement  that  may  be  made  by  the  State  of  its  in- 
corporation and  with  any  requirement  that  may  be  imposed  by 
Congress  as  a  condition  of  its  right  to  engage  in  interstate  com- 
merce. 

Second.  Unless  it  is  conducted  and  managed  in  conformity  with 
the  said  provisions  and  limitations,  and  is  organized  under  the  laws 
of  a  State,  Territory,  or  District  in  which  its  executive  officers  are 
located  and  its  directors'  meetings  regularly  held. 

Third.  If  it,  directly  or  indirectly,  of  itself  or  in  connection  with 
others  destroys  or  seeks  unfairly  to  stifle  fair  competition  in  any 
part  of  the  United  States  in  the  manufacture,  production,  mining, 
purchase,  sale,  or  transportation  of  any  articles  of  commerce  not 
the  subject  of  any  patent,  copyright,  or  trademark  held  by  it  either 
by  making  or  effecting  exclusive  contracts,  rights,  or  privileges 
relating  thereto,  by  restricting  its  customers  or  other  persons  with 
regard  to  price,  territory,  or  otherwise,  in  freely  buying,  selling, 
or  transporting  any  such  article,  by  securing  the  monopoly  or  con- 
trol of  raw  material  or  sources  of  supply  or  of  any  business  con- 
nected therewith,  by  temporarily  or  locally  reducing  prices  with 
intent  to  stifle  competition,  by  accepting  rebates,  or  by  any  other 
act,  device,  or  course  of  business  that  is  unfair  and  tends  to  secure 
an  unfair  advantage  and  unreasonably  and  unfairly  to  destroy 
competition. 

Sec.  2.  That  every  contract  made  in  violation  of  this  Act  shall 
be  void,  and  no  corporation  or  association  shall  bring  or  maintain 
any  suit  or  proceeding  in  any  court  of  the  United  States  unless  it 
is  organized,  conducted,  and  managed  as  required  by  section  one, 
nor  shall  this  provision  prevent  the  removal  of  any  such  suit  or 
proceeding  to  such  courts  where  such  defense  may  be  available 
to  the  defendant. 

Sec.  3.  That  the  prohibitions  of  section  one  and  section  two 
shall  apply  to  any  association  membership  in  which  is  represented 
by  shares,  and  the  word  "association"  used  in  this  Act  shall  include 
any  joint-stock  company,  business,  trust,  estate,  or  any  form  of 


Methods  of  Dealing  with  the  Trust  Problem    539 

association  used  for  business  purposes;  but  said  prohibitions  shall 
not  apply  to  any  corporation  or  association  not  engaged  in  business 
for  profit  or  engaged  exclusively  in  any  one  or  more  of  the  following 
businesses:  Education;  a  railroad  or  other  common  or  public 
carrier  of  property  or  persons  or  messages;  banking;  insurance;  the 
supply  of  water,  light,  heat,  or  power;  or  engaged  exclusively  and 
independently  in  any  business  or  businesses  the  substantial  bulk 
of  which  is  carried  on  in  foreign  countries  or  exclusively  in  any  one 
State  or  Territory  or  District,  and  which  does  not  involve  the 
transmission  of  goods  from  one  State  or  Territory  or  District  to 
another,  nor  the  purchase,  sale,  or  consignment  of  articles  com- 
monly the  subject  of  commerce  between  the  States  and  Territories, 
and  actually  intended  for  or  becoming  the  subject  of  such 
commerce. 

Sec.  4.  That  no  person  or  persons  shall  form,  operate,  or  act  as 
or  for  a  corporation  or  association  for  the  purpose  or  with  the  ef- 
fect of  violating  this  Act,  or  conspire  thereto  and  of  themselves  or 
by  coconspirator  do  any  act  or  thing  to  effect  such  conspiracy. 

Sec.  5.  That  every  corporation,  association,  trust,  or  person 
violating  this  Act  shall  be  subject,  upon  conviction  thereof,  in  case 
of  a  corporation  or  association,  to  a  fine  not  exceeding  ten  per  cen- 
tum of  its  capital  stock,  or  to  a  perpetual  injunction  against  engag- 
ing in  interstate  commerce,  or  both,  and  in  the  case  of  a  person,  to 
a  fine  not  exceeding  ten  thousand  dollars  for  each  such  violation, 
and,  if  the  violation  is  willful  with  intent  to  defraud  or  to  create  a 
monopoly  or  unfairly  to  stifle  competition,  to  such  fine  and  imprison- 
ment for  not  exceeding  five  years. 

Sec.  6.  That  the  Act  of  February  eleventh,  nineteen  hundred 
and  three,  relative  to  the  expedition  of  certain  suits  in  equity,  and 
sections  four  and  five  of  the  Act  of  July  second,  eighteen  hundred 
and  ninety,  known  as  the  Sherman  Anti-trust  Act,  shall  apply  to 
all  proceedings  and  suits  in  equity  under  this  Act. 

Sec.  7.  That  the  purchase,  sale,  or  consignment  of  any  article  in- 
tended to  become  and  actually  becoming  an  article  of  commerce 
between  the  States  or  Territories  shall  be  deemed  to  be  an  Act  of 
engaging  in  such  commerce  under  this  Act. 

Sec.  8.  That  the  foregoing  provisions  of  this  Act  shall  take  effect 
January  first,  nineteen  hundred  and  thirteen,  but  shall  not  apply 
to  corporations  or  associations  having  a  capital  stock  and  surplus 
under  ten  million  dollars  until  January  first,  nineteen  hundred  and 
fourteen. 


540  Industrial  Combinations  and  Trusts 

Sec.  9.  That  any  corporation  or  association  organized,  conducted, 
and  managed  as  required  by  section  one  shall,  after  the  passage  of 
this  Act,  be  entitled  to  engage  in  commerce  between  the  States 
and  Territories,  and  to  carry  on  its  authorized  business  relative  to 
such  commerce  in  any  part  of  the  United  States,  subject  to  the  pro- 
visions of  this  Act  and  to  all  present  laws  of  the  United  States  and 
to  future  Acts  of  Congress,  and  to  the  general  laws  and  taxing 
power  of  any  State,  Territory,  or  District  in  which  it  may  do  busi- 
ness. 

Exhibit  4 

senator  albert  b.  cummins  » 

A   BILL 

To  further  regulate  commerce  among  the  States  and  with  foreign 
nations,  to  create  a  Trade  Commission,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the 
United  States  of  America  in  Congress  assembled,  That  nothing  con- 
tained in  this  Act  shall  be  construed  to  make  lawful  any  contract, 
combination,  conspiracy,  any  act  of  monopolizing,  any  monopoly, 
any  attempt  to  monopolize,  or  any  practice,  custom,  or  thing  made 
unlawful  by  either  section  one  or  section  two  of  an  Act  entitled 
"An  Act  to  protect  trade  and  commerce  against  unlawful  restraints 
and  monopolies,"  approved  July  second,  eighteen  hundred  and 
ninety.  The  intent  of  this  Act  is  to  create  and  maintain  competitive 
conditions  in  commerce  among  the  States  and  with  foreign  nations, 
and  it  shall  be  construed  liberally  to  accomplish  the  said  intent. 

Sec.  2.  That  the  words  enumerated  in  this  section  shall  have  the 
following  meaning  when  found  in  this  Act,  to  wit: 

"Commerce"  means  commerce  among  the  States  or  with  foreign 
nations;  that  is  to  say,  such  commerce  as,  under  the  Constitution, 
Congress  has  the  power  to  regulate. 

"Corporation  "  means  a  body  incorporated  under  law,  including 
joint-stock  associations  and  all  other  associations  having  shares 
of  capital  or  capital  stock. 

"Person"  means  any  individual  or  company  of  individuals, 
however  associated  together,  except  those  falling  within  the  defini- 
tion of  corporation. 

1  Bill  introduced  by  Senator  Cummins.  Senate  5451,  62nd  Congress  2nd. 
Session.    1911-1912. 


Methods  of  Dealing  with  the  Trust  Problem     541 

"Commission"  means  the  Trade  Commission  herein  created. 

"Capital"  means  not  only  the  capital  owned  by  a  corporation 
or  person  but  also  capital  borrowed  in  any  form  whatsoever  or 
credit  used  for  business  purposes. 

The  Act  shall  not  apply  to  corporations  having  less  than  five 
millions  of  dollars  of  capital  nor  to  persons  or  corporations  engaged 
in  the  business  of  common  carriers. 

Sec.  3.  That  no  corporation  organized  after  the  first  day  of 
March,  nineteen  hundred  and  twelve,  or  whose  articles  of  incorpora- 
tion or  association  are  amended  after  that  date,  nor  any  person, 
shall  engage  in  commerce  employing  such  extent  of  capital  as  would, 
by  reason  of  such  extent,  destroy  or  prevent  substantially  compet- 
itive conditions  in  the  general  field  of  industry  in  which  such  cor- 
poration is  engaged;  nor  shall  any  corporation  organized  prior  to 
the  first  day  of  March,  nineteen  hundred  and  twelve,  engage  in 
commerce  after  the  first  day  of  January,  nineteen  hundred  and 
fourteen,  employing  such  extent  of  capital  as  would,  by  reason  of 
such  extent,  destroy  or  prevent  substantially  competitive  conditions 
in  the  general  field  of  industry  in  which  such  corporation  is  engaged. 

Sec.  4.  That  no  corporation  created  or  whose  articles  of  incor- 
poration or  association  are  amended  after  March  first,  nineteen 
hundred  and  twelve,  shall  engage  in  commerce  upon  whose  board 
of  directors  or  other  managing  board,  or  among  whose  officers  there 
is  any  person  who  is  a  member  of  the  board  of  directors  or  other 
managing  board,  or  among  the  officers  of  any  other  corporation 
carrying  on  a  business  of  the  same  general  character,  and  which 
therefore  ought  to  be  competitive,  or  who  is  himself,  or  with 
associates,  carrying  on  any  such  competitive  business.  This  section 
shall  apply  to  corporations  organized  prior  to  March  first,  nineteen 
hundred  and  twelve,  from  and  after  July  first,  nineteen  hundred 
and  thirteen.  If  dummy  or  nominal  directors  or  offices  are  placed 
upon  the  board  or  among  the  officers  who  in  fact  represent  and  are 
controlled  by  a  person  or  persons  who  are  themselves  within  this 
section,  it  shall  be  held  that  the  persons  so  representing  or  control- 
ling are  on  the  board  or  among  the  officers. 

Sec.  5.  That  no  corporation  organized,  or  whose  articles  of  in- 
corporation or  association  are  amended  after  March  first,  nineteen 
hundred  and  twelve,  shall  engage  in  commerce  which  holds,  owns, 
or  controls,  directly  or  indirectly,  any  share  or  shares  of  capital 
stock  or  any  other  means  of  control  of  any  other  corporation; 
and  no  corporation  theretofore  organized  shall  engage  in  commerce 


542  Industrial  Combinations  and  Trusts 

after  the  first  day  of  January,  nineteen  hundred  and  fourteen, 
which  then  or  thereafter  holds,  owns,  or  controls,  directly  or  indi- 
rectly, any  share  or  shares  of  capital  stock  or  other  means  of  control 
of  any  other  corporation:  Provided,  That  any  such  corporation 
may  for  a  period  of  three  months  own  or  hold  shares  of  stock  in 
another  corporation  if  they  have  been  taken  in  satisfaction  or 
partial  satisfaction  or  security  for  bona  fide  indebtedness. 

Sec.  6.  That  no  corporation  shall,  after  January  first,  nineteen 
hundred  and  thirteen,  engage  in  commerce  upon  whose  board  of 
directors  or  other  managing  board,  or  among  whose  officers,  is 
any  person  who  is  a  member  of  the  board  of  directors,  or  other 
managing  board,  or  among  the  officers  of  any  institution  carrying 
on  the  business  of  banking,  whether  such  institution  is  incorporated 
or  unincorporated:  Provided,  however,  That  this  section  shall  ap- 
ply only  to  corporations  employing  a  capital  of  ten  millions  of 
dollars  or  more.  The  use  of  dummy  or  nominal  directors  or  officers 
shall  have  the  consequences  prescribed  in  section  four. 

Sec.  7.  That  no  corporation  shall,  after  January  first,  nineteen 
hundred  and  thirteen,  engage  in  commerce,  more  than  ten  per 
centum  of  whose  capital  stock  or  other  means  of  control  is  owned 
or  held  by  any  person  or  corporation  which,  not  being  engaged  in 
commerce,  also  owns  or  holds  ten  per  centum  or  more  of  the  capital 
stock  or  other  means  of  control  of  any  other  corporation  engaged  in 
commerce  and  doing  a  competitive  business:  Provided,  however,  That 
if  the  person  or  corporation  not  engaged  in  commerce  acquires, 
owns,  or  holds  such  stock  or  other  means  of  control  without  the 
assent,  connivance,  or  participation  of  the  officers  or  directors  of 
the  corporation  engaged  in  commerce,  then  the  prohibition  of  this 
section  shall  not  apply;  but,  in  that  event,  the  shares  of  capital 
stock  so  acquired,  owned,  or  held,  shall  have  no  voting  power  in 
control  or  management. 

Sec.  8.  That  no  person  or  corporation  shall,  after  the  first  day 
of  January,  nineteen  hundred  and  fourteen,  engage  in  commerce 
w7hich  owns  or  controls,  either  directly  or  indirectly,  or  which 
operates  a  line  of  transportation,  or  which  carries  on  the  business 
of  a  common  carrier,  and  which  at  the  same  time  carries  on  any 
producing  or  manufacturing  business:  Provided,  That  the  aforesaid 
regulation  shall  not  be  held  to  include  the  ordinary  or  necessary 
switching  facilities  properly  appurtenant  to  a  producing  or  man- 
ufacturing business.  Nor  shall  any  person  or  corporation,  after 
the  date  last  aforesaid,  engage  in  commerce  which  receives,  directly 


Methods  of  Dealing  with  the  Trust  Problem    543 

or  indirectly,  from  any  common  carrier  any  part  of  the  freight 
rate  or  charge  made  and  collected  for  the  transportation  of  freight. 

Sec.  9.  That  no  person  or  corporation  shall  engage  in  commerce 
which  for  a  period  of  more  than  two  months  regularly  and  generally 
sells  the  product  or  products  in  which  it  deals,  or  which  it  manu- 
factures, below  actual  cost  for  the  purpose  of  inflicting  injury 
upon  a  competitor,  or  for  the  purpose  of  compelling  such  competitor 
to  cease  carrying  on  business;  and  no  person  or  corporation  shall 
engage  in  commerce  whose  business  it  is  to  manufacture  or  sell 
commodities,  unless  he  or  it,  as  the  case  may  be,  shall  sell  or  offer 
to  sell  a  given  commodity  to  all  purchasers  for  substantially  like 
deliveries  at  the  same  price:  Provided,  however,  That  if  the  price 
includes  the  cost  of  transportation  from  the  place  of  sale  the  selling 
price  may  vary  according  to  the  cost  of  transportation:  And  pro- 
vided further,  That  this  section  shall  not  be  held  to  require  the  same 
price  for  carload  lots  and  less  than  carload  lots. 

Sec.  10.  That  no  corporation  organized  after  March  first, 
nineteen  hundred  and  twelve,  shall  engage  in  commerce  if  the  par 
of  its  capital  stock  or  shares,  and  secured  indebtedness  or  indebted- 
ness other  than  current  indebtedness,  amount  in  the  aggregate  to 
a  sum  more  than  ten  per  centum  in  excess  of  the  fair  and  reasonable 
value  of  the  property  owned  and  held  by  such  corporation;  and  no 
corporation  organized  prior  to  the  first  day  of  March,  nineteen 
hundred  and  twelve,  shall  engage  in  commerce  if  hereafter  it  issues 
capital  stock  or  shares  or  any  form  of  capitalization  the  nominal 
or  par  value  of  which  exceeds  by  more  than  ten  per  centum  the 
fair  and  reasonable  value  of  the  property  received  by  the  corpora- 
tion therefor:  Provided,  however,  That  this  section  shall  not  apply 
to  those  instances  in  which,  through  losses  sustained  in  business, 
the  value  of  the  property  of  a  corporation  may  fall  below  the  aggre- 
gate amount  of  such  capital  stock  or  shares  and  indebtedness. 

Sec.  11.  That  no  corporation  organized  after  March  first,  nine- 
teen hundred  and  twelve,  shall  engage  in  commerce  which  has  paid 
either  in  money  or  in  the  issuance  and  delivery  of  stocks  or  bonds, 
or  otherwise,  for  services  in  promoting  or  financing,  or  for  any  other 
purpose  connected  with  the  organization  and  capitalization  of  the 
corporation,  more  than  the  following,  to  wit: 

For  a  capitalization  of  fifty  millions  of  dollars  or  more,  the  sum 
of  one  per  centum  upon  the  capitalization;  but  in  no  event  to  exceed 
one  per  centum  upon  one  hundred  millions  of  dollars; 

For  a  capitalization  of  twenty  millions  of  dollars  or  more,  but  less 


544  Industrial  Combinations  and  Trusts 

than  fifty  millions  of  dollars,  the  sum  of  two  per  centum  upon  the 
capitalization;  but  in  no  event  to  exceed  one  per  centum  upon 
fifty  millions  of  dollars;  JtB 

For  a  capitalization  of  less  than  twenty  millions  of  dollars,  the 
sum  of  three  per  centum  upon  the  capitalization;  but  in  no  event 
to  exceed  two  per  centum  upon  twenty  millions  of  dollars. 

Sec.  12.  That  there  is  hereby  created  a  body  which  shall  be 
known  as  "The  Trade  Commission."  It  shall  be  composed  of  three 
members.  It  shall  be  appointed  by  the  President,  by  and  with 
the  advice  and  consent  of  the  Senate.  The  terms  of  their  offices 
shall  be  nine  years,  and  until  their  successors  are  appointed  and 
qualified:  Provided,  That  of  the  first  three  appointees  the  President 
shall  designate  one  who  shall  hold  his  office  for  three  years  and  one 
for  six  years,  and  at  the  expiration  of  each  of  such  shorter  terms 
the  appointment  shall  be  made  for  nine  years.  Vacancies,  however, 
occurring  shall  be  filled  by  like  appointment  and  confirmation  for 
the  unexpired  term.  Each  of  said  commissioners  shall  receive  an 
annual  salary  of  ten  thousand  dollars.  The  office  of  the  commission 
is  hereby  established  at  Washington,  District  of  Columbia,  but 
the  commission  may  hold  meetings  when  convenient  or  necessary 
elsewhere.  The  duties  and  powers  of  said  commission  are  herein- 
after prescribed. 

Sec.  13.  That  the  Bureau  of  Corporations  is  hereby  transferred 
to  and  merged  in  the  commission,  and  all  officers  and  employees  of 
the  Bureau  of  Corporations  shall  hereafter  be  the  officers  and  em- 
ployees of  the  commission,  and  with  the  transfer  there  shall  pass 
to  the  possession  of  the  commission  all  the  records  and  papers  of  said 
bureau,  and  the  commission  shall  hereafter  exercise  all  the  powers 
and  perform  all  the  duties  heretofore  conferred  or  imposed  upon 
the  said  bureau:  Provided,  however,  That  all  reports  now  provided 
by  law  to  be  made  by  the  bureau  to  the  President  shall  hereafter 
be  made  to  Congress  or  as  directed  by  either  House  thereof. 

All  appropriations  heretofore  made  for  the  support  and  mainte- 
nance of  the  bureau  shall  stand  as  appropriations  to  be  expended 
by  the  commission  in  the  exercise  of  the  powers  and  performance 
of  the  duties  which  the  law,  prior  to  the  passage  of  this  Act,  con- 
ferred or  imposed  upon  said  bureau. 

Sec.  14.  That  in  addition  to  the  officers  and  employees  now  pro- 
vided for  the  Bureau  of  Corporations  the  said  commission  shall 
have  the  power  to  employ  such  secretaries,  clerks,  inspectors,  ex- 
aminers, experts,  messengers,  and  other  assistants  as  from  time  to 


Methods  of  Dealing  with  the  Trust  Problem    545 

time  may  be  necessary,  and  as  may  be  appropriated  for  by  Congress. 
With  the  exception  of  one  secretary,  all  the  foregoing  employees 
shall  be  a  part  of  the  classified  civil  service,  and  shall  enter  the 
service  under  such  rules  and  regulations  as  may  be  prescribed  by 
the  commission  hereby  created  and  by  the  Civil  Service  Commis- 
sion. The  commission  shall  also  have  the  power  to  rent  suitable 
rooms  for  the  conduct  of  its  work,  paying  therefor  such  rental  as 
may  be  provided  for  by  appropriation. 

Sec.  15.  That  it  shall  be  the  duty  of  the  commission  to  carefully 
inquire  into  the  organization  of  all  corporations  included  within  this 
Act  and  which  are  engaged  or  which  propose  to  engage  in  commerce 
and  into  the  conduct  of  the  business  of  all  corporations  or  persons 
engaged  in  commerce;  and  to  that  end  it  shall  have  the  power  to 
subpoena  and  examine  under  oath  individuals.  No  individual  may 
claim  the  privilege  of  refusing  to  answer  for  the  reason  that  his 
answer  would  or  might  incriminate  him;  but  his  answer,  if  the  claim 
is  made  at  the  time,  shall  not  be  used  against  him  in  any  criminal 
proceeding;  but  neither  any  other  person  nor  the  corporation  with 
which  such  individual  is  connected,  whether  as  a  stockholder,  officer 
or  agent,  employee,  creditor,  or  otherwise,  shall  be  entitled  to  any 
immunity  because  of  any  disclosure  so  made. 

The  commission  shall  also  have  the  power  to  require  the  produc- 
tion for  examination  of  all  documents,  contracts,  memoranda,  or 
other  papers  relating  to  the  commerce  in  which  a  person  or  corpora- 
tion under  inquiry  is  engaged.  If  the  commission  shall  be  of  the 
opinion  that  any  such  examination  or  inquiry  shows  that  there  has 
been  a  violation  of  any  law  of  the  United  States  respecting  the  regu- 
lation of  commerce,  it  shall  be  its  duty  to  lay  before  the  Department 
of  Justice  the  information  it  has  acquired,  to  the  end  that  such  pro- 
ceedings as  the  law  requires  may  be  taken  by  the  department:  Pro- 
vided, however,  That  this  section  shall  not  apply  to,  nor  shall  the 
commission  have  any  duty  to  perform  under  or  with  respect  to, 
common  carriers  embraced  within  the  Act  commonly  known  as  the 
interstate-commerce  law,  and  the  amendments  thereto:  And  provided 
further,  That  this  section  shall  not  be  construed  to  conflict  with  the 
specific  powers  and  duties  conferred  or  imposed  upon  the  commis- 
sion with  respect  to  sections  three,  nine,  and  ten  of  this  Act. 

Sec.  16.  That  the  commission  shall  have  the  power,  and  it  shall 
be  its  duty,  to  determine  whether  any  person  or  corporation  is  vio- 
lating either  section  three  of  this  Act,  or  is  violating  sections  one  or 
two  of  the  Act  entitled  "An  Act  to  protect  trade  and  commerce 


546  Industrial  Combinations  and  Trusts 

against  unlawful  restraints  and  monopolies,"  in  so  far  only  as  con- 
cerns the  mere  extent  of  capital  employed;  but  the  power  conferred 
in  this  section  shall  not  extend  to  the  manner,  usages,  customs,  or 
practices  in  the  operation  or  conduct  of  a  business. 

The  commission  may  prescribe  rules  for  the  inquiry  or  examination 
authorized  in  this  section,  which  shall  include  notice  and  hearing. 
In  making  such  inquiry  and  in  reaching  a  conclusion  thereunder  the 
commission  shall  be  guided  and  controlled  by  the  rules  established 
herein.  When  any  such  inquiry  is  completed  the  commission  shall 
determine  whether  there  has  been  or  is  a  violation  of  section  three 
of  this  Act,  or  whether  there  has  been  or  is  a  violation  of  sections  one 
or  two  of  the  said  Act  entitled  "An  Act  to  protect  trade  and  com- 
merce against  unlawful  restraints  and  monopolies,"  in  the  respect, 
and  in  the  respect  only,  hereinbefore  set  forth,  and  it  shall  enter  its 
determination  in  a  record  kept  for  that  purpose.  If  the  determina- 
tion is  that  there  has  been  or  is  a  violation,  as  aforesaid,  then  unless 
the  violation  ceases  within  a  period  to  be  fixed  by  the  commission, 
the  commission  may  either  submit  all  its  information  with  its  de- 
termination thereon  to  the  Department  of  Justice  for  such  action 
as  that  department  may  lawfully  take,  or  it  may  institute  in  the 
name  of  the  United  States  such  suit  or  suits  in  equity  as  are  now 
authorized  by  the  United  States  in  the  said  Act  of  eighteen  hundred 
and  ninety,  or  which  are  authorized  by  this  Act  to  be  brought  in 
the  name  of  the  United  States;  and  in  any  suit  or  suits  so  instituted 
by  the  commission  in  the  name  of  the  United  States  the  jurisdiction 
of  the  courts  and  the  rights  and  remedies  shall  be  the  same  as  though 
the  suit  or  suits  had  been  instituted  in  the  name  of  the  United  States 
by  or  under  the  direction  of  the  Department  of  Justice;  and  in  any 
such  suit,  whether  brought  by  direction  of  the  Department  of  Jus- 
tice or  by  direction  of  the  commission,  the  determination  of  the 
commission  shall  have  the  same  effect  as  though  made  by  Congress 
itself. 

If,  however,  the  determination  of  the  commission  is  that  there 
has  been  and  is  no  violation  of  section  three  of  this  Act  and  no  viola- 
tion of  sections  one  or  two  of  the  said  Act  of  eighteen  hundred  and 
ninety  in  the  respect  aforesaid,  then  no  suit  or  action  of  either  civil 
or  criminal  nature  shall  be  brought  or  maintained  by  the  United 
States  alleging  a  violation  of  section  three  of  this  Act  or  of  sections 
one  or  two  of  the  said  Act  of  eighteen  hundred  and  ninety  in  the 
respect  aforesaid,  against  which  the  determination  of  the  commis- 
sion is  entered. 


Methods  of  Dealing  with  the  Trust  Problem    547 

Sec.  17.  That  the  commission  shall  have  the  power  and  it  shall 
be  its  duty  to  determine  whether  any  corporation  engaged  in  com- 
merce is  in  violation  of  sections  nine  and  ten  of  this  Act,  and  may 
prescribe  rules  for  the  inquiry,  which  rules  shall  include  notice  and 
hearing,  and  in  making  the  inquiry  the  commission  shall  be  guided 
and  controlled  by  the  rule  prescribed  by  Congress  in  said  sections, 
and  when  completed  it  shall  enter  its  determination  in  a  record  kept 
for  that  purpose.  If  the  determination  is  that  the  corporation  under 
examination  is  in  violation  of  the  said  sections  or  either  of  them, 
and  unless  the  violation  ceases  within  a  period  to  be  fixed  by  the  com- 
mission, then  the  commission  may  either  submit  its  information  and 
determination  to  the  Department  of  Justice  for  such  action  as  that 
department  may  take,  or  it  may  bring,  in  the  name  of  the  United 
States,  such  suit  in  equity  as  this  Act  authorizes  to  be  brought  in 
the  name  of  the  United  States  by  or  under  the  direction  of  the  Depart- 
ment of  Justice;  and  the  jurisdiction  of  the  courts,  the  rights,  pro- 
cedure, and  remedies  shall  be  the  same  as  though  the  suit  were  in- 
stituted in  the  name  of  the  United  States  by  or  under  the  direction 
of  the  Department  of  Justice;  and  in  any  such  suit,  whether  brought 
by  direction  of  the  Department  of  Justice  or  by  direction  of  the 
commission,  the  determination  of  the  commission  shall  have  the 
same  effect  as  though  made  by  Congress  itself. 

If  the  determination  of  the  commission  shall  be  against  the  viola- 
tion of  either  of  said  sections  nine  and  ten,  then  no  action,  either 
civil  or  criminal,  shall  be  brought  or  maintained  by  the  United  States 
alleging  the  violation  against  which  the  determination  of  the  commis- 
sion is  entered. 

Sec.  18.  That  every  person  or  corporation  violating  any  of  the 
provisions  of  this  Act,  and  every  person  who  causes  or  who  assists  in 
causing  any  corporation  to  violate  any  of  the  provisions  of  this  Act, 
shall  be  deemed  guilty  of  a  misdemeanor,  and  on  conviction  thereof 
shall  be  punished  by  a  fine  not  exceeding  five  thousand  dollars  or 
by  imprisonment  not  exceeding  one  year  or  both. 

Sec.  19.  That  all  the  provisions  of  section  four  of  the  Act  en- 
titled "An  Act  to  protect  trade  and  commerce  against  unlawful 
restraints  and  monopolies,"  approved  July  second,  eighteen  hundred 
and  ninety,  and  all  provisions  of  law  relating  to  suits  brought  there- 
under shall  apply  to  this  Act  and  to  the  violations  thereof. 


548  Industrial  Combinations  and  Trusts 

Exhibit  5 

judge  elbert  ii.  gary  l 

federal  license  act. 

Section  i.  No  corporation  created  under  the  laws  of  any  State  or 
Territory  of  the  United  States  or  the  District  of  Columbia,  or  any 
foreign  sovereignty,  and  having  capital  stock  or  assets  of  ten  million 
dollars  or  more,  shall  engage  in  trade  or  commerce  between  the 
United  States  and  foreign  nations,  or  among  the  several  States,  or 
between  a  State  or  States  and  places  subject  to  the  jurisdiction  of 
the  United  States,  or  between  any  Territories  of  the  United  States, 
or  in  and  between  such  Territory  or  Territories  and  any  State  or 
States  and  the  District  of  Columbia  or  places  under  the  jurisdiction 
of  the  United  States,  or  between  the  District  of  Columbia  and  any 
State  or  States  and  foreign  nations  or  places  under  the  jurisdiction 
of  the  United  States,  until  such  corporation  shall  comply  with  the 
requirements  of  this  act,  and  shall  obtain  the  certificate  of  license 
hereinafter  mentioned:  Provided,  however,  That  the  provisions  of  this 
act  shall  not  apply  to  any  common  carrier  mentioned  in  section  one 
of  the  act  entitled  "An  act  to  regulate  commerce,"  approved  Feb- 
ruary fourth,  eighteen  hundred  and  eighty-seven,  as  amended:  And 
provided  further,  That  corporations  heretofore  organized  and  engaged 
in  such  business  shall  have  one  year  from  the  date  of  the  passage  of 
this  act  to  comply  therewith  and  to  obtain  a  license.  Any  corpora- 
tion which  has  a  capital  stock  or  assets  of  less  than  ten  million  dollars, 
which  is  engaged  or  intends  to  engage  in  interstate  or  foreign  trade 
or  commerce  as  aforesaid,  may  voluntarily  comply  with  the  provisions 
of  this  act  by  making  application  for  a  license.  So  long  as  it  retains 
such  license  any  such  corporation  shall  be  subject  to  all  the  provisions 
of  this  act. 

Sec.  2.  In  order  to  comply  with  the  requirements  of  this  act  and 
to  obtain  the  certificate  of  license  hereinafter  mentioned,  the  cor- 
poration applying  therefor  shall  make  an  application  for  such  certifi- 
cate of  license,  which  application  shall  specifically  set  forth  (first) 
the  name  of  the  corporation,  which  name  shall  be  subject  to  the 

1  This  bill  was  drafted  by  Judge  Gary  and  submitted  to  the  Senate  Commit- 
tee on  Interstate  Commerce  at  the  request  of  that  body.  Cf.  Hearings  before  the 
Senate  Committee  on  Interstate  Commerce  on  the  Control  of  Corporations, 
Persons  and  Firms  engaged  in  Interstate  Commerce.  62nd  Cong.  2nd  Sess. 
1911-1912,  pp.  2407-2412. 


Methods  of  Dealing  with  the  Trust  Problem    549 

approval  of  the  Corporation  Commission;  (second)  the  State,  Terri- 
tory, or  other  sovereignty  under  the  laws  of  which  the  corporation 
was  created,  with  the  date  of  its  creation  and  the  place  in  which  the 
principal  business  office  of  the  corporation  is  situated,  designating 
the  State,  Territory,  or  district,  and  county  and  city,  town,  or  village; 
(third)  the  objects  for  which  the  corporation  was  established,  stating 
the  general  nature  of  the  interstate  or  foreign  trade  or  commerce 
which  it  intends  to  carry  on;  (fourth)  the  amount  of  the  authorized 
capital  stock  of  the  corporation,  the  amount  of  capital  stock  issued 
and  outstanding,  and  whether  or  not  any  part  of  the  capital  stock 
was  contributed  in  property  other  than  money,  and,  if  so,  the  amount 
of  such  part;  (fifth)  the  number  of  shares  into  which  the  capital  stock 
is  divided  and  the  par  value  of  such  shares;  whether  or  not  such 
shares  are  divided  into  classes,  and,  if  so,  the  amount  of  each  class 
and  a  statement  of  the  preferential  and  other  special  rights  of  each 
class;  (sixth)  the  number  of  directors  and,  if  they  are  divided  into 
two  or  more  classes,  the  number  of  directors  constituting  each  class 
and  the  terms  of  office  of  each  class,  respectively,  and  the  names  and 
post-office  addresses  of  the  directors  and  executive  officers  of  the 
corporation  at  the  time  of  the  making  of  such  application;  (seventh) 
the  period  limited  for  the  duration  of  the  corporation;  (eighth)  any 
provision  defining,  limiting,  and  regulating  the  powers  of  the  cor- 
poration, its  officers,  directors,  or  stockholders,  or  of  any  class  or 
classes  of  stockholders;  (ninth)  the  fact  that  the  application  is  made 
to  enable  such  corporation  to  avail  itself  of  the  advantages  of  this 
act;  (tenth)  a  copy  of  the  certificate  of  incorporation  or  charter  of 
the  corporation.  Said  application  shall  also  contain  such  other  in- 
formation as  may  be  required  by  the  Corporation  Commission. 

The  application  shall  be  signed  in  the  name  of  said  corporation  by 
its  president  under  authority  of  its  board  of  directors,  and  the  cor- 
porate seal  shall  be  affixed  thereto  and  attested  by  its  secretary,  and 
the  statements  made  therein  shall  be  sworn  to  by  the  president  and 
treasurer;  and  the  application  so  executed  and  sworn  to  shall  be 
transmitted  to  the  Corporation  Commission. 

Sec.  3.  It  shall  be  the  duty  of  the  Corporation  Commission  to 
examine  such  application  and  to  determine  whether  it  conforms  to 
the  requirements  of  this  act  and  contains  any  provision  that  is  con- 
trary to  any  other  act  of  Congress,  and  whether  the  name  proposed 
to  be  adopted  by  such  corporation  is  the  same  as  or  so  nearly  re- 
sembles the  name  of  any  other  corporation  already  licensed  under 
this  act  as  to  be  calculated  to  deceive;  and  if  the  organization  and 


550  Industrial  Combinations  and  Trusts 

business  of  the  said  corporation  do  not  involve  any  unlawful  restraint 
of  trade  and  commerce  among  the  several  States  and  Territories  and 
foreign  nations,  and  do  not  constitute  a  monopoly  or  an  attempt  to 
monopolize  said  trade  and  commerce,  the  said  application  shall  be 
filed  and  recorded  in  a  book  to  be  kept  for  that  purpose;  and  upon 
payment  of  the  license  fees  hereinafter  specified,  said  commission 
shall  issue  a  copy  of  said  application  so  filed,  together  with  a  certifi- 
cate of  the  commission  duly  authenticated  that  the  corporation  has 
complied  with  all  the  provisions  of  law  required  to  be  complied  with, 
and  has  become  and  is  authorized  to  engage  in  interstate  and  foreign 
commerce  as  specified  in  its  application.  And  from  the  date  of  such 
certificate  the  said  corporation  as  such  and  in  the  name  designated 
shall  have  the  right  to  engage  in  interstate  and  foreign  commerce,  as 
aforesaid,  unless  said  license  is  revoked  as  hereinafter  provided  for 
cause  shown. 

Sec.  4.  Should  the  Corporation  Commission  refuse  to  grant  a  li- 
cense to  any  corporation  under  the  terms  of  this  act,  said  corporation 
may,  upon  such  refusal,  bring  a  suit  against  the  said  Corporation 
Commission  before  the  Court  of  Commerce  or  any  district  court  of 
the  United  States,  which  said  courts  are  hereby  given  jurisdiction 
to  review  the  action  of  said  Corporation  Commission,  and  if  it  shall 
appear  to  the  court  that  said  corporation  has  complied  with  all  the 
terms  and  conditions  of  this  act,  and  that  the  name  of  said  corpora- 
tion is  not  the  same  as  the  name  of  any  other  corporation  engaged 
in  the  same  or  similar  business  and  already  licensed  under  this  act,  or 
so  nearly  resembling  the  same  as  to  be  calculated  to  deceive,  and  if  in 
the  judgment  of  such  court  the  organization  and  business  of  said  cor- 
poration do  not  involve  any  unlawful  restraint  of  trade  and  com- 
merce among  the  several  States,  Territories,  and  foreign  nations,  and 
do  not  constitute  a  monopoly,  or  an  attempt  to  monopolize  said 
trade  and  commerce,  and  are  not  in  violation  of  any  other  act  of  Con- 
gress, the  court  shall  make  an  order  directing  the  said  Corporation 
Commission  to  issue  the  said  license  pursuant  to  law.  The  said  pro- 
ceedings shall  constitute  an  action  in  equity  and  be  tried  in  the  same 
manner  as  other  actions  in  equity,  and  an  appeal  shall  He  from  the 
judgment  of  said  court  to  the  Supreme  Court  of  the  United  States, 
provided  such  appeal  be  taken  within  thirty  days  from  the  entry  of 
the  judgment.  Upon  any  refusal  to  grant  a  license,  if  the  corporation 
applying  therefor  shall  thereafter  and  within  thirty  days  institute 
a  suit  as  aforesaid,  the  court  shall  have  authority  pending  the  litiga- 
tion to  enter  an  order  permitting  the  said  corporation  to  engage  and 


Methods  of  Dealing  with  the  Trust  Problem    551 

continue  in  such  commerce  pending  the  final  decision  on  such  ap- 
plication. 

Sec.  5.  If  any  corporation  which  has  obtained  and  maintained  a 
license  under  this  act  shall  subsequently,  pursuant  to  the  laws  of  the 
place  of  its  incorporation,  change  its  name  or  amend  its  certificate  of 
incorporation,  it  shall  immediately  file  with  the  Corporation  Commis- 
sion a  certified  copy  of  the  amended  certificate  or  other  document 
evidencing  such  change.  Thereupon  the  commission  shall  issue  an 
amended  license  to  conform  to  the  change  of  name  or  amendment  of 
the  certificate  of  incorporation :  Provided,  That  the  new  name  adopted 
by  said  corporation  shall  not  be  the  same  as  the  name  of  any  other 
corporation  engaged  in  the  same  or  similar  business  and  already 
licensed  under  this  act,  or  so  nearly  resembling  the  same  as  in  the 
opinion  of  the  Corporation  Commission  to  be  calculated  to  deceive, 
and  the  amendment  to  the  certificate  of  incorporation  shall  not  con- 
travene any  of  the  provisions  of  this  act. 

Sec.  6.  No  corporation  licensed  pursuant  to  this  act  shall  carry  on 
the  business  of  discounting  bills,  notes,  or  other  evidences  of  debt,  or 
receiving  deposits  or  buying  and  selling  bills  of  exchange,  nor  shall  it 
issue  bills,  notes,  or  other  evidences  of  debt  for  circulation  as  money. 

Sec.  7.  As  a  condition  of  the  issuance  of  any  license  under  this  act, 
the  Corporation  Commission  shall  require  every  corporation  here- 
after organized  applying  for  license  hereunder  to  establish  to  the 
satisfaction  of  the  commission  the  fact  that  no  stock  of  the  said  cor- 
poration was  issued  except  for  cash  or  for  property  equal  in  value  to 
the  par  value  of  the  stock  thus  issued,  and  in  determining  the  value  of 
any  property  in  payment  for  which  stock  has  been  issued,  the  Cor- 
poration Commission  shall  not  be  bound  by  the  decision  of  the  board 
of  directors  of  the  said  corporation.  To  enable  the  Corporation 
Commission  to  ascertain  the  reasonable  value  of  the  said  property  it 
shall  cause  the  said  corporation  to  file  with  the  commission  a  state- 
ment in  writing,  signed  and  sworn  to  by  a  majority  of  the  members  of 
the  board  of  directors,  setting  forth:  (a)  A  full  description  of  the  prop- 
erty in  payment  for  which  the  stock  was  issued;  (b)  the  number  of 
shares  issued  in  payment  for  said  property  and  whether  or  not  such 
shares  have  a  par  value,  and  if  so,  the  aggregate  par  value  of  the 
stock  so  issued,  or  if  not,  then  the  number  of  shares  so  issued;  (c)  the 
names  and  addresses  of  the  vendors  of  the  property  purchased  or 
acquired  by  the  corporation  with  the  stock  so  issued  and  whether  or 
not  they,  or  any  of  them,  were  officers  or  directors  of  the  corporation, 
and  whether  or  not  they,  or  any  of  them,  were,  to  the  knowledge  of 


552  Industrial  Combinations  and  Trusts 

the  signers  of  the  statement,  owners  in  their  own  name  or  otherwise 
of  any  shares  of  stock  in  the  corporation,  and  if  so,  of  how  many  of 
such  shares;  (d)  the  terms  of  any  agreements,  verbal  or  written,  for 
the  transfer  of  such  property  to  the  corporation,  and  the  parties  to 
all  such  agreements,  and  particularly  the  amount  paid  as  purchase 
money  in  cash  or  shares  for  such  property,  specifying  any  amount 
payable  for  good  will  and  any  and  all  amounts  paid  to  each  vendor; 
and  in  case  any  written  contract  has  been  made  with  said  vendors, 
or  any  of  them,  a  sworn  copy  thereof  shall  be  filed  with  such  state- 
ment; (e)  in  case  the  vendors  of  such  property,  or  any  of  it,  are  di- 
rectors of  the  corporation  or  owners  of  any  of  its  stock  in  their  own 
names  or  otherwise,  a  statement  of  the  prices  paid  by  them  for  the 
property  so  sold  or  transferred  to  the  corporation  and  copies  of  all 
contracts  by  which  the  said  vendors  acquired  the  ownership  or  the 
control  thereof.  In  case  the  stock  issued  in  payment  for  said  prop- 
erty has  a  par  value,  there  shall  be  filed  with  such  statement  with  the 
Corporation  Commission  an  appraisement  of  the  value  of  said  prop- 
erty made  by  two  disinterested  appraisers,  approved  in  writing  by 
the  Corporation  Commission ;  and  the  commission  may  in  its  discre- 
tion appoint  one  or  more  other  appraisers  to  make  valuations  on 
such  property  and  shall  fix  the  compensation  of  such  appraisers, 
which  shall  be  paid  by  the  corporation  before  the  issuance  of  any 
license;  and  no  license  shall  be  issued  to  any  corporation  whose  stock 
having  a  par  value  shall  have  been  issued  in  payment  of  property 
purchased  or  acquired  by  the  corporation  to  an  amount  at  such  par 
value  in  excess  of  the  value  of  the  said  property  as  approved  by  the 
Corporation  Commission  after  such  appraisement :  Provided,  however, 
That  the  requirements  of  this  section  shall  not  apply  to  any  corpora- 
tion organized  prior  to  the  passage  of  this  act. 

Sec.  8.  No  corporation  licensed  hereunder  and  whose  business 
constitutes,  according  to  the  estimate  of  the  commission,  more  than 
fifty  per  centum  of  the  total  business  of  the  same  character  in  the 
United  States  shall  purchase  the  property  and  business  of  any  other 
corporation  or  person  engaged  in  a  similar  competitive  business  in  the 
United  States,  unless  the  said  purchasing  corporation  shall  first  apply 
to  the  Corporation  Commission,  stating  the  nature  of  the  business 
so  to  be  purchased,  the  price  to  be  paid  therefor,  and  such  other  facts 
as  may  be  required  by  the  commission.  It  shall  thereupon  be  the 
duty  of  the  Corporation  Commission  to  inquire  whether  the  said 
facts  are  true,  and  whether  the  purchase  of  said  property  would  tend 
to  create  a  monopoly  in  the  purchasing  corporation  cr  to  unduly 


Methods  of  Dealing  with  the  Trust  Problems    553 

restrain  trade  and  commerce  among  the  States  and  with  foreign 
nations  in  violation  of  any  law  of  Congress;  and  if,  in  the  opinion  of 
the  commission,  such  purchase  would  tend  to  create  a  monopoly  in 
the  purchasing  corporation  or  to  unduly  restrain  trade  and  commerce 
as  aforesaid,  then  the  commission  shall  refuse  permission  to  purchase 
said  property  and  business,  and  any  purchase  notwithstanding  said 
refusal  shall  subject  the  said  corporation  to  a  forfeiture  of  its  license 
as  hereinafter  provided. 

Sec.  9.  Every  corporation  licensed  pursuant  to  this  act  shall  file 
in  the  Bureau  of  Corporations  within  sixty  days  after  the  first  day  of 
January,  or  the  first  day  of  July  in  each  year,  or  at  such  other  times 
as  the  Corporation  Commission  may  prescribe,  a  report  on  the  con- 
dition of  said  corporation  at  the  close  of  business  on  the  preceding 
thirty-first  day  of  December,  or  the  thirtieth  day  of  June,  as  the 
case  may  be,  in  such  form  and  setting  forth  such  details  as  the  Cor- 
poration Commission  shall  from  time  to  time  prescribe,  which  report 
shall  be  verified  by  oath  or  affirmation  of  the  president  or  treasurer  of 
such  corporation  and  attested  by  the  signatures  of  at  least  three  of 
the  directors.  The  Corporation  Commission  shall  also  have  power 
to  call  for  special  reports  from  any  particular  corporation  whenever, 
in  its  judgment,  the  same  shall  be  necessary  in  order  to  secure  a  full 
and  complete  knowledge  of  the  condition  of  said  corporation.  In 
addition  to  such  reports,  every  corporation  organized  under  the  act 
shall  report  to  the  Corporation  Commission  within  ten  days  after 
declaring  any  dividend  the  amount  of  such  dividend  and  the  class  or 
classes  of  stock  on  which  it  is  payable,  and  a  copy  of  the  statement 
of  the  financial  condition  of  the  corporation  showing  the  amount  of 
the  net  earnings  of  such  corporation  on  hand  at  the  time  of  declaring 
such  dividends;  which  report  shall  be  attested  by  the  president,  vice 
president,  or  treasurer  of  such  corporation. 

Every  corporation  which  shall  fail  to  make  and  transmit  any  re- 
port required  by  this  section  shall  be  subject  to  a  penalty  of  one 
hundred  dollars  for  each  day  after  the  period  therein  mentioned 
that  it  continues  in  default  in  the  filing  of  such  report,  said  penalty 
to  be  collected  by  the  Corporation  Commission;  but  the  Corpora- 
tion Commission  may  for  good  cause  shown  extend  the  time  for 
filing  such  reports  without  penalty  for  a  period  not  exceeding  sixty 
days.  All  sums  of  money  collected  for  penalties  under  this  section 
shall  be  paid  into  the  Treasury  of  the  United  States. 

Sec.  10.  Any  corporation  licensed  hereunder  which  seeks  to  in- 
crease the  amount  of  its  capital  stock  shall  first  obtain  the  consent 


554  Industrial  Combinations  and  Trusts 

of  the  Corporation  Commission  to  any  such  increase,  and,  as  a 
condition  of  obtaining  such  consent,  shall  file  with  the  Corporation 
Commission  a  statement  in  such  form  as  may  be  prescribed  by  the 
commission,  setting  forth  the  circumstances  of  such  intended  in- 
crease, and  if  such  increase  is  intended  for  the  purpose  of  acquiring 
additional  property,  the  said  statement  shall  set  forth  the  facts 
specified  in  the  statements  required  by  section  nine  hereof.  Any 
increase  of  capital  stock  of  a  corporation  licensed  hereunder  with- 
out the  filing  of  the  statements  and  the  obtaining  of  the  consent  re- 
quired under  this  section  shall  subject  the  said  corporation  to  a 
forfeiture  of  its  license,  as  hereinafter  provided. 

Sec.  ii.  In  case  any  corporation  licensed  under  this  act  shall  enter 
into  any  contract  or  combination  or  engage  in  any  conspiracy  in 
restraint  of  trade  and  commerce  among  the  several  States  or  with 
foreign  nations,  or  shall  monopolize  or  attempt  to  monopolize  any 
part  thereof,  or  shall  engage  in  any  oppressive  methods  of  compe- 
tition for  the  purpose  of  obtaining  a  monopoly  of  said  interstate 
commerce  contrary  to  the  provisions  of  the  act  of  July  second, 
eighteen  hundred  and  ninety,  entitled  "An  act  to  protect  trade  and 
commerce  against  unlawful  restraints  and  monopolies,"  its  license 
may  be  forfeited,  or  the  said  corporation  may  be  enjoined  from 
the  continuance  of  such  acts,  as  hereafter  more  particularly  pro- 
vided. 

Sec.  12.  For  the  purpose  of  carrying  out  the  provisions  of  this 
act  and  for  the  proper  supervision  of  such  corporations  as  shall  be 
licensed  hereunder  there  is  hereby  created  a  commission,  to  be 
known  as  .the  Corporation  Commission,  which  shall  be  composed 
of  three  commissioners.  The  said  commissioners  shall  be  appointed 
by  the  President,  by  and  with  the  advice  and  consent  of  the  Senate. 
Not  more  than  two  of  said  commissioners  shall  be  appointed  from 
the  same  political  party.  The  first  commissioners  appointed  shall 
hold  office,  one  for  two  years,  one  for  four  years,  and  one  for  six 
years,  and  each  commissioner  thereafter  appointed  shall  hold 
office  for  six  years.  No  person  in  the  employ  of  or  holding  any 
official  relation  to  any  corporation  subject  to  the  provisions  of 
this  act,  or  owning  stock  or  bonds  thereof,  or  who  is  in  any  manner 
pecuniarily  interested  therein,  shall  be  eligible  to  hold  such  office. 
Such  commissioners  shall  not  engage  in  any  other  business,  voca- 
tion, or  employment.  No  vacancy  in  the  commission  shall  impair 
the  right  of  the  remaining  commissioners  to  exercise  all  the  powers 
of  the  commission. 


Methods  of  Dealing  with  the  Trust  Problem    555 

The  said  commissioners  shall  each  receive  a  salary  of  ten  thousand 
dollars  per  annum. 

The  said  commission  shall  have  the  power  and  authority  to  in- 
quire into  the  organization,  conduct,  and  management  of  the  busi- 
ness of  all  corporations  licensed  under  this  act;  and  said  commission 
shall  have  the  right  to  obtain  from  such  corporations  full  and  com- 
plete information  necessary,  in  its  judgment,  to  enable  the  com- 
mission to  perform  the  duties  and  carry  out  the  object  for  which 
it  is  created,  and  it  is  hereby  authorized  to  execute  and  enforce  the 
provisions  of  this  act. 

Sec.  12.  x  The  said  commission  shall  have  the  same  power  of 
inquiry  over  commerce  conferred  upon  the  Bureau  of  Corporations 
under  the  act  creating  the  Department  of  Commerce  and  Labor, 
approved  February  fourteenth,  nineteen  hundred  and  three,  in- 
cluding the  power  to  issue  subpcenaes  *  to  compel  the  attendance  of 
witnesses  and  the  production  of  documentary  evidence,  and  to 
administer  oaths,  and  may  avail  itself  of  all  the  information  ob- 
tained by  said  bureau  and  direct  investigation  to  be  made  by  said 
bureau  when  necessary  to  assist  said  commission.  All  the  require- 
ments, obligations,  liabilities,  and  immunities  imposed  by  the  act 
to  regulate  commerce  and  by  the  act  in  relation  to  testimony  before 
the  Interstate  Commerce  Commission,  and  by  the  act  to  create  the 
Department  of  Commerce  and  Labor,  shall  apply  to  all  persons  who 
may  be  subpoenaed  to  testify  as  witnesses,  or  to  produce  documen- 
tary evidence  in  pursuance  of  the  authority  conferred  by  this  act. 

Sec.  13.  Any  person,  firm,  corporation,  company,  or  association, 
or  any  mercantile,  agricultural,  or  manufacturing  society  or  other 
organization,  or  any  body  politic  or  municipal  organization,  com- 
plaining of  anything  done,  or  omitted  to  be  done,  by  any  corpora- 
tion subject  to  the  provisions  of  this  act,  or  complaining  that  any 
such  corporation  has  entered  into  any  contract  of  combination,  or 
engaged  in  any  conspiracy  in  restraint  of  trade  or  commerce  among 
the  several  States  or  with  foreign  nations,  or  has  monopolized  or 
attempted  to  monopolize  any  part  thereof,  or  is  engaged  in  oppres- 
sive or  unfair  methods  of  competition  for  the  purpose  of  monopoliz- 
ing such  commerce  or  part  thereof  contrary  to  the  provisions  of 
this  act,  or  of  the  act  of  July  second,  eighteen  hundred  and  ninety, 
entitled,  "An  act  to  protect  trade  and  commerce  against  any  un- 
lawful restraints  and  monopolies,"  may  apply  to  said  commission 
by  petition,  which  shall  briefly  state  the  facts,  whereupon  it  shall 
1  Thus  in  original. — Ed. 


556  Industrial  Combinations  and  Trusts 

be  the  duty  of  the  said  commission,  at  such  time  and  place  as  the 
commission  shall  determine,  after  notice  to  such  corporation,  to 
inquire  into  the  subject  matter  of  said  complaint,  and  the  commis- 
sion i>  hereby  authorized  in  like  manner,  upon  its  own  motion,  to 
institute  and  prosecute  any  investigation  of  the  acts  of  such  cor- 
poration. And  said  commission  shall  have  the  same  powers  and 
authority  to  proceed  with  any  inquiry  on  its  own  motion  as  though 
it  had  been  appealed  to  on  complaint  or  petition  under  any  provi- 
sions of  this  act.  Whenever  any  investigation  shall  be  made  by 
this  commission  under  the  terms  of  this  act,  it  shall  be  its  duty  to 
make  and  tile  an  order  embodying  the  conclusions  of  the  commis- 
sion, together  with  its  decision  or  requirement  in  the  prem- 
ises. 

The  said  commission  shall  have  authority  by  its  order  to  require 
any  corporation  licensed  hereunder  to  desist  from  any  violation  of 
this  act  or  of  the  act  of  July  second,  eighteen  hundred  and  ninety, 
entitled  "An  act  to  protect  trade  and  commerce  against  unlawful 
restraints  and  monopolies,"  and  may  institute  proceedings  in  any 
district  court  of  the  United  States  or  in  the  Court  of  Commerce  for 
the  forfeiture  of  the  license  of  said  corporation,  or  to  enjoin  the 
corporation  from  such  violation,  and  said  courts  are  hereby  given 
jurisdiction  upon  the  institution  of  any  such  proceedings,  either  to 
grant  an  injunction,  to  decree  to  *  forfeiture  of  a  license,  or  to  make 
such  other  decree  as  justice  and  equity  may  require. 

Sec.  14.  Under  the  provisions  of  this  act  there  shall  be  paid  to 
the  Corporation  Commission  for  the  use  of  the  United  States  the 
following  fees:  First,  upon  the  filing  and  approval  of  any  applica- 
tion for  license  hereunder  an  amount  equal  to  one-tenth  of  one  per 
cent  of  the  total  authorized  capital  of  said  corporation  up  to  ten 
million  dollars;  one-twentieth  of  one  per  cent  of  all  capital  in  excess 
of  ten  million  dollars;  and  up  to  twenty  million  dollars;  two  hun- 
dred and  fifty  dollars  on  every  million  dollars  or  fraction  thereof  of 
capital  in  excess  of  twenty  million  dollars;  and  the  like  fees  upon  the 
filing  of  any  certificate  of  increase  of  the  capital  stock  upon  the  to- 
tal amount  of  such  increase.  Second,  in  case  any  corporation  is 
licensed  hereunder  with  the  whole  or  a  part  of  its  capital  stock 
having  no  par  value,  then  there  shall  be  paid  upon  the  filing  and 
approval  of  the  application  for  license  or  of  any  certificate  of  in- 
crease of  capital  a  fee  equal  to  two  and  one-half  cents  for  each 
aliquot  part  of  the  capital  of  the  corporation  represented  by  each 
1  Thus  in  original. — Ed. 


Methods  of  Dealing  with  the  Trust  Problem    557 

of  the  shares  not  having  a  par  value,  but  in  no  instance  shall  such 
fee  be  less  than  two  hundred  and  fifty  dollars. 

Sec.  15.  Any  corporation  licensed  hereunder  may  apply  to  the 
commission  at  any  time  for  a  determination  as  to  whether  or  not 
any  proposed  action  of  such  licensee  would  unduly  restrain  trade 
or  commerce  or  create  a  monopoly,  and  the  commission  shall  there- 
upon investigate  and  make  an  order  allowing  or  prohibiting  such 
proposed  action,  and  any  action  taken  by  any  corporation  pur- 
suant to  such  order  shall  be  lawful ;  but  such  order,  as  to  its  future 
operation,  shall  be  subject  to  revocation  upon  notice.  In  connec- 
tion with  any  order  allowing  such  proposed  action  and  as  a  condi- 
tion of  granting  the  same,  the  commission  may  fix  the  maximum 
prices  of  any  products  with  reference  to  which  the  order  is  made 
if  in  the  judgment  of  the  commission  the  fixing  of  such  price  shall 
be  necessary  to  prevent  a  monopoly  or  an  undue  restraint  of  trade 
or  commerce,  and  the  prices  so  fixed  shall  govern  the  said  licensee 
so  long  as  the  order  is  in  force. 

Exhibit  6 

ANDREW  CARNEGIE  x 

In  other  words,  there  should  promptly  be  created  an  industrial 
court,  molded  after  the  Interstate  Commerce  Commission  and  Court 
of  Commerce,  charged  with  all  questions  connected  with  manufac- 
ture and  natural  products,  since  the  Interstate  Commerce  Commis- 
sion is  already  fully  occupied  with  its  own  field,  but  as  the  Com- 
merce Court  is  not  kept  busy  with  appeals  it  might  be  the  court 
of  appeal  for  the  industrial  court  as  well  as  for  the  Interstate  Com- 
merce Commission.  To  prove  the  pressing  necessity  for  the  two 
judicial  organizations  already  formed,  in  contrast  to  the  Supreme 
Court,  which  waited  several  years  before  an  important  issue  came 
before  it,  the  Interstate  Commerce  Commission  has  already  sat  in 
judgment  upon  the  greatest  of  all  organizations,  the  Pennsylvania 
Railroad  Co.  It  asked  to  be  permitted  to  advance  its  rate  in  one 
department.  After  investigation  the  reply  in  the  negative  was 
promptly  accepted  by  the  suitor,  no  appeal  taken,  who  thus  set  all 
companies  an  excellent  example. 

To-day  the  Commerce  Court  is  hearing  counsel  on  the  transcon- 
tinental railroads  who  asked  an  injunction  restraining  an  order  of 

1  Hearings  before  the  Committee  on  Investigation  of  United  States  Steel 
Corporation.    62nd  Cong.  2nd  Sess.  1911-1912,  pp.  2347-2348. 


558  Industrial  Combinations  and  Trusts 

lb-  [nterstate  Commerce  Commission  construing  the  long  and  short 
haul  clause.  Thus  the  work  goes  bravely  on.  The  reign  of  law  is 
Steadily  being  evolved  us  precedents  are  established.  The  industrial 
court  Deed  not  fix  all  prices.  Its  province  should  be  to  examine  all 
details,  ascertain  cost  of  production,  adding  to  such  amount  as  in 
its  judgment  will  yield  a  fair  or  even  liberal  return  upon  capital 
when  skillfully  invested  and  properly  managed;  the  maximum  sell- 
ing price  to  consumers  to  be  fixed  by  the  court,  based  upon  the  aver- 
age cost  price  of  product  in  up-to-date,  well-managed  works.  There 
may  be  found  poorly  constructed  or  conducted  works  in  all  branches, 
which  the  court  should  not  consider  in  fixing  proper  maximum  price. 
Such  should  be  compelled  to  reach  standard  performance  or  suffer 
the  consequences  of  mismanagement.  The  court  should  not  become 
an  eleemosynary  institution  to  avert  failure  of  those  who  fail  through 
inattention  or  mismanagement.  It  may  be  urged  that  this  would 
prevent  equal  returns  to  owners,  which  is  true.  Any  works  which 
can  not  equal  average  cost  and  still  have  part  left  of  the  profit  al- 
lowed by  the  court  no  nursing  is  likely  to  improve;  the  sooner  it 
passes  into  competent  hands,  the  danger  of  monopoly  being  avoided, 
the  better  for  the  country  and,  as  a  rule,  the  better  for  its  owners. 
Failures  now  and  then  in  business  there  always  have  been  and  always 
will  be  as  long  as  men's  powers  and  habits  radically  differ. 

While  of  opinion  that  little  or  no  action  is  needed  at  present  be- 
yond the  organization  and  development  of  an  industrial  court,  I 
am  far  from  believing  that  from  time  to  time,  as  we  gain  experience, 
new  rules  and  some  changes  will  not  be  found  advisable  and  even 
necessary  from  time  to  time  to  keep  in  harmony  with  inevitable 
and  probably  surprising  developments  of  the  future.  Our  country 
has  not  ceased  developing.  We  should  unhesitatingly  pursue  the 
course  here  indicated  for  the  present,  and  await  further  develop- 
ments and  be  guided  accordingly.  It  is  certain  that  our  legislators, 
sustained  by  the  people,  who  only  need  to  be  kept  fully  informed  of 
all  steps  taken,  can  and  will  in  due  time  bring  harmony  out  of  present 
discord,  reconstructing  through  the  reign  of  law  the  old  and  present 
industrial  systems  by  continual  improvements  therein,  all  tending 
to  draw  labor  and  capital,  producer  and  consumer,  into  closer  and 
more  satisfactory  relations  than  have  ever  before  existed  between 
them. 

Meanwhile,  let  us  prove  to  the  country,  and  especially  to  the 
masses  of  the  people,  that  wre  are  on  the  path  of  careful  but  steady 
progress  to  the  advantage  of  all  the  members  of  the  indispensable 


iMethods  of  Dealing  with  the  Trust  Problem    559 

quartet — labor,  capital,  consumer,  producer — the  interests  of  which 
are  more  closely  allied  and  more  interdependent  than  either  one  of 
the  four  realizes. 

It  is  far  from  being  of  the  first  importance  to  punish  men  in  this 
age  who  in  the  past  formed  pools  and  divided  orders  according  to 
the  capacity  of  their  works  or  capital  invested,  or  violated  recent 
laws  without  knowing  it.  Men  of  the  highest  standing  in  the  past 
thought  they  did  no  wrong  and  sought  no  concealment.  The  pro- 
ducer then  did  not  imagine  he  was  a  wrongdoer.  He  followed  recog- 
nized custom,  and  even  railway  officials,  fighting  in  their  day  for 
their  respective  companies,  urged  that  they  only  met  the  prices  of 
competitors,  were  somewhat  in  the  same  position. 

Since  the  Sherman  law  has  been  so  far  interpreted  by  the  Supreme 
Court,  all  this  is  changed.  No  honest  man  can  now  do  some  things 
which  he  did  innocently  before,  but  just  what  he  can  and  can  not 
do  is  yet  to  be  clearly  defined.  It  is,  however,  not  punishment  for 
the  past,  but  obedience  in  the  future  to  clearly  defined  law,  which 
alone  can  bring  to  the  realms  of  commerce  and  industry  the  peace 
which  our  railway  system  now  enjoys.  To  this  consummation  so 
devoutly  to  be  wished  we  earnestly  hope  your  commission  is  to  prove 
one  of  the  chief  contributors. 

Exhibit  7 
james  a.  farrell,  president  of  the  u.  s.  steel  corporation  * 

Mr.  Beall.  But  is  your  idea  that  competition  is  destructive, 
that  it  will  result  in  bankruptcy;  that  it  is  a  bad  thing,  anyway? 

Mr.  Farrell.  There  is  no  question  about  it.    If  you  apply  it 

Mr.  Beall  (interposing).  And  this  old  idea  that  has  been  pre- 
vailing in  business  for  so  many  centuries,  that  competition  is  the  life 
of  trade,  has  been  all  a  delusion? 

Are  you  also  one  of  the  apostles  of  this  new  cult  that  is  being  de- 
veloped in  the  country,  that  the  Government  ought  to  step  in  and 
regulate  and  fix  the  maximum  price  for  the  products  of  these  cor- 
porations? Do  you  agree  with  Mr.  Gary,  Mr.  Carnegie,  and  the 
other  apostles  of  that  idea,  and  Mr.  Perkins? 

Mr.  Farrell.  Is  that  a  personal  question? 

Mr.  Reed.  He  wants  your  personal  opinion. 

1  Testimony  of  James  A.  Farrell.  Hearings  before  the  Committee  on  In- 
vestigation of  United  States  Steel  Corporation,  62nd  Cong.  2nd  Sess.  191 1- 
191 2,  pp.  2696-2699. 


560  Industrial  Combinations  and  Trusts 

Mr.  BEALL.  I  would  like  to  have  your  personal  opinion  about  it. 

Mr.  Farrell.  I  have  written  it  out.  I  thought  possibly  I  might 
be  asked  the  question. 

[do  not  suppose  that  my  opinion  on  the  subject  is  of  any  particu- 
lar value.  If  your  prefer  to  confine  this  inquiry  to  the  industry,  I 
shall  endeavor  to  answer  all  the  questions  you  wish  to  put  to  me, 
but  if  you  want  my  ideas  on  this  subject,  I  shall  be  glad  to  give  them, 
although  I  do  not  consider  them  of  value. 

Mr.  Beall.  It  is  an  interesting  question,  Mr.  Farrell,  and  rather 
a  new  one. 

Mr.  Farrell.  I  am  not  a  publicist. 

The  Chairman.  We  are  more  anxious  for  your  opinion  on  that 
account.     [Laughter.] 

supervision  of  corporations. 

Mr.  Farrell.  I  believe  that  it  is  important  for  the  Government 
to  assume  the  power  of  such  supervision  of  corporations  engaged  in 
interstate  traffic  as  will  result  in  full  and  clear  publicity  of  their 
general  operations,  their  receipts  and  expenditures  and  profits  and 
losses,  in  order  to  protect  investors  and  the  people  generally.  Such 
supervisory  board  could  not  only  be  authorized  to  compel  such 
necessary  publicity,  but  empowered  in  the  case  of  any  corporation 
not  presenting  information  as  to  the  details  required  by  the  law  which 
may  be  enacted,  to  investigate  into  the  conduct  of  its  business,  with 
a  view  to  full  exposition  of  its  methods.  Such  publicity  as  I  have 
in  mind  is  along  the  lines  of  the  information  that  has  been  freely 
and  fully  given  out  by  the  United  States  Steel  Corporation  in  its 
annual  reports  and  frequent  statements. 

The  fixing  of  prices  by  Government  authority:  Speaking  entirely 
as  an  individual  and  giving  my  personal  views  without  any  knowl- 
edge of  what  might  be  the  views  of  other  officials  and  directors  of 
the  United  States  Steel  Corporation,  it  would  appear  to  be  abso- 
lutely impracticable  for  the  Government  to  attempt  to  fix  prices  of 
all  commodities,  even  those  manufactured  only  by  the  steel  industry, 
in  view  of  the  hundreds  of  thousands  of  variations  of  shapes,  sizes, 
sections,  gauges,  kinds,  qualities,  etc.  When  it  is  considered  that 
it  requires  a  large  corps  of  experts  in  each  of  the  manufacturing  com- 
panies of  the  United  States  Steel  Corporation  alone  to  determine  the 
costs  of  hundreds  of  thousands  of  articles  or  variations  of  such  prod- 
ucts as  those  companies  make,  it  can  be  readily  understood  that 
it  would  require  hundreds  of  experts  merely  to  determine  suitable 


Methods  of  Dealing  with  the  Trust  Problem    561 

prices  for  the  steel  industry  alone,  without  considering  the  thousands 
of  other  industries  in  the  United  States,  each  of  which  would  be 
equally  entitled  to  have  prices  fixed  on  their  multitude  of  products. 

If  the  questions  be  considered  from  the  standpoint  of  fixing  maxi- 
mum prices,  it  would  seem  to  be  equally  impracticable,  for  the  reasons 
just  cited,  as  well  as  the  difficulty  of  satisfying  the  many  manufac- 
turers engaged  in  the  same  lines  of  trade,  each  of  whom  have  dif- 
ferent costs  of  manufacture  to  produce  the  same  or  similar  articles. 
It  would  seem  unnecessary  to  point  out  the  many  other  objections, 
including  the  necessity  of  frequently  altering  the  fixed  prices  to 
accord  with  the  laws  of  supply  and  demand,  the  changeable  costs  of 
manufacture  contingent  on  the  volume  of  production  and  other 
exigencies  of  manufacture.  As  a  natural  corollary  to  the  fixing  of 
either  changeable  or  maximum  prices  would  be  the  inevitable  ne- 
cessity of  fixing  maximum  and  minimum  wages  to  labor,  as  it  is 
necessary,  according  to  theorists  and  economists,  that  the  wages  of 
labor  must  be  commensurate  with  the  article  which  it  manufactures 
or  which  it  directly  or  indirectly  consumes. 

Suggested  method  of  insuring  fair  prices:  If  it  should  be  asked, 
however,  granting  the  necessity  of  Government  supervision  of  corpo- 
rations under  Federal  incorporation,  whether  mandatory  or  volun- 
tary, as  in  the  wisdom  of  Congress  might  be  determined,  and  conced- 
ing the  impracticability  of  fixing  prices,  how  a  fair  price  to  consumers 
and  manufacturers  alike  may  be  insured  with  the  object  of  avoiding 
(a)  the  exacting  of  excessive  prices  from  consumers;  (b)  any  possible 
oppression  of  their  competitors  by  manufacturers  with  larger  capital 
or  better  facilities  for  economic  production;  (c)  avoiding  destructive 
competition  whereby  weaker  producers  would  be  driven  out  of  busi- 
ness ;  (d)  the  impoverishment  of  people  dependent  on  such  industries, 
loss  of  employment,  or  reduction  of  wages — it  is  suggested  as  being 
wrorthy  of  consideration,  a  law  similar  to  that  which  obtains  in 
Canada — you  are  no  doubt  familiar  with  that  law  in  Canada — and 
which  in  effect  is  the  practice  in  Germany. 

When  it  might  appear  to  the  Government  board  of  supervision, 
either  on  their  own  initiative,  or  from  the  complaint  of  any  consid- 
erable body  of  consumers,  that  prices  in  any  line  of  industry  are 
unreasonably  high,  they  should  be  empowered  to  make  inquiry  into 
the  facts,  to  call  upon  manufacturers  to  disclose  their  profits,  and  to 
determine  and  indicate  to  manufacturers  their  opinion  as  to  the  rea- 
sonableness of  their  price,  subject,  if  necessary,  to  review  by  the 
courts  as  to  any  contention  that  prices  were  confiscatory. 


562  Industrial  Comb]      cions  and  Trusts 

Likewise,  when,  in  the  opinion  of  any  body  of  manufacturers,  il 
should  appear  necessary,  in  order  to  prevent  destructive  competi- 
tion, the  lowering  of  wages,  the  impairment  of  plants,  throwing  work- 
men out  of  employment,  and  other  similar  evils  through  reduction 
of  prices  to  levels  which  would  not  permit  efficient  plants  to  operate 
at  a  fair  profit,  it  should  be  permissible  for  manufacturers  or  the 
owners  of  plants  to  enter  into  agreement  as  to  such  reasonable  prices 
as  might  be  necessary  to  prevent  such  results.  To  avoid  the  pos- 
sibility of  such  manufacturers  agreeing  on  excessive  prices  there 
would  be  the  remedy  of  the  opportunity  of  appeal  by  consumers  to 
the  Government  board  of  supervision,  and  the  consequent  publicity, 
which  would  act  as  a  restraint  upon  manufacturers  from  fixing  ex- 
cessive prices;  penalties,  such  as  forfeiture  of  Federal  incorporation 
or  other  suitable  means  of  redress  could  be  enforced,  if  necessary, 
to  dissuade  manufacturers  from  maintaining  prices  adjudged  to  be 
either  excessive  or  ruinously  low. 

The  foregoing  suggestion  is  not  by  any  means  a  novel  or  original 
one.  It  is  in  effect  that  which  is  permitted  in  Canada,  Germany, 
and  other  foreign  countries,  the  object  of  whose  Governments  is  ap- 
parently to  foster  industries  rather  than  to  tear  them  down.  Such 
Governments  not  only  allow  reasonable  prices  to  be  fixed  by  agree- 
ment, but  require  them  to  be  fixed  for  the  protection  cf  manufac- 
turers, consumers,  and  labor  alike. 

Mr.  Beall.  As  I  understand,  your  position  is  that  it  is  not  pos- 
sible for  the  Government  to  step  in  and  go  to  the  extent  of  fixing 
even  a  maximum  price,  for  the  reason  that  you  have  so  clearly  stated? 

Mr.  Farrell.  Would  you  accept  that  brief  as  an  answer  to  your 
question,  Mr.  Beall? 

Mr.  Beall.  Yes. 

Then  the  alternative  would  be  the  breaking  down  of  the  laws  as 
they  exist  to-day  that  forbid  the  kind  of  agreements  such  as  you 
have  mentioned.  You  would  have  to  repeal  all  the  laws  forbidding 
monopoly  and  restraint  of  trade — the  Sherman  Act  and  everything 
like  that? 

Mr.  Farrell.  Not  necessarily.  I  do  not  believe  in  the  repeal  of 
the  Sherman  Act,  but  I  believe  the  Sherman  Act  should  be  amended 
so  as  to  enable  manufacturers  to  know  what  they  can  do.  We  do  not 
know  now  what  we  can  do. 

Mr.  Beall.  If  this  theory  that  was  suggested  here  first  by  Judge 
Gary  should  be  put  in  operation,  and  some  governmental  agency 
should  be  required  to  fix  a  maximum  price  as  a  basis  for  its  action, 


Methods  of  Dealing  with  the  Trust  Problem    563 

it  would  be  necessary  for  that  agency  to  be  fully  advised  as  to  the 
cost  of  any  article,  would  it  not? 

Mr.  Farrell.  Are  you  asking  my  opinion  with  respect  to  the 
testimony  that  has  been  given? 

Mr.  Be  all.  No,  sir;  I  am  asking  your  opinion  if  a  certain  policy 
should  be  pursued  by  the  Government  that  has  been  suggested  here, 
whether  or  not  it  would  be  necessary  for  that  commission,  or  what- 
ever you  might  term  it,  to  have  accurate,  full,  and  complete  informa- 
tion as  to  the  cost  of  any  and  every  article  the  price  of  which  they 
would  attempt  to  regulate;  and  that  condition  would  bring  about  the 
very  condition  against  which  you  protest  to-day;  it  would  advise  all 
the  world  of  the  cost  of  any  article  made  by  American  manufacturers? 

Mr.  Farrell.  As  I  understand  the  Sherman  law,  it  is  designed  to 
prohibit  monopoly? 

Mr.  Beall.  Yes. 

Mr.  Farrell.  As  the  Sherman  law  is  designed  to  prohibit  mo- 
nopoly, which  would  inevitably  result  from  destructive  competition, 
driving  the  weaker  competitors  out  of  business,  it  should  be  equally 
clear  that  it  should  permit  such  agreements  among  manufacturers 
as  to  prices  as  would  enable  them  to  avoid  the  destructive  competi- 
tion which  is  impliedly  prohibited. 


Exhibit  8 

george  w.  perkins  1 

It  seems  to  me  that  the  developments  of  this  last  year  have  made 
this  pretty  plain  to  our  people,  and  my  observation  is  that  the  time 
is  ripe  to  make  a  careful  beginning  at  least  of  some  sort  of  regulation 
of  interstate  and  international  business,  and  having  watched  this 
phase  of  the  development  as  carefully  as  I  have  been  able  to,  and 
all  that  has  been  said  by  a  great  many  people  who  are  qualified  to 
speak  on  it,  I  have  reduced  to  a  short  memorandum  what  occurs  to 
me  might  possibly  be  a  step  that  could  be  taken  very  promptly  for 
relief.    I  will  read  it.    I  have  divided  this  into  two  parts,  as  follows: 

1  Testimony  of  George  W.  Perkins.  Hearings  before  the  Committee  on 
Interstate  Commerce  on  the  Control  of  Corporations,  Persons  and  Firms  en- 
gaged in  Interstate  Commerce.  62nd  Cong.  2nd  Sess.  1911-1912,  pp.  1 091-1093, 
1122-1129. 


564  Industrial  Combinations  and  Trusts 


IMMEDIATE   RELIEF. 

First.  Create  at  once  in  the  Department  of  Commerce  and  Labor 
a  business  court  or  controlling  commission,  composed  largely  of  expe- 
rienced business  men. 

Second.  Give  this  body  power  to  license  corporations  doing  an 
interstate  or  international  business. 

Third.  Make  such  license  depend  on  the  ability  of  a  corporation 
to  comply  with  conditions  laid  down  by  Congress  when  creating 
such  commission  and  with  such  regulations  as  may  be  prescribed 
by  the  commission  itself. 

Fourth.  Make  publicity,  both  before  and  after  license  is  issued, 
the  essential  feature  of  these  rules  and  regulations.  Require  each 
company  to  secure  the  approval  of  said  commission  of  all  its  affairs, 
from  its  capitalization  to  its  business  practices.  In  the  beginning 
lay  down  only  broad  principles,  with  a  view  to  elaborating  and  per- 
fecting them  as  conditions  require. 

Fifth.  Make  the  violation  of  such  rules  and  regulations  punish- 
able by  the  imprisonment  of  individuals  rather  than  by  the  revoca- 
tion of  the  license  of  the  company,  adopting  in  this  respect  the  method 
of  procedure  against  national  banks  in  case  of  wrongdoing. 

PROSPECTIVE  RELIEF. 

First.  The  House  and  Senate  to  join  at  once  in  appointing  a  com- 
mission to  make  a  careful  study  of  the  Sherman  law  and  the  various 
suggestions  that  have  been  made  regarding  its  repeal,  amendment, 
and  amplification. 

Second.  Said  commission  to  study  and  report  on  the  wisdom  and 
practicability  of  a  national  incorporation  act. 

SUMMARY. 

Anyone  familiar  with  present  business  conditions  in  this  country, 
both  as  to  domestic  and  foreign  trade,  realizes  that  the  brakes  are  on. 
We  are  not  expanding  our  domestic  trade  to  the  extent  we  should  be. 
New  enterprises  are  not  being  undertaken  as  freely  as  they  should  be. 
Capital  in  this  country  is  contracting  rather  than  expanding  its  op- 
erations, while  Germany,  Canada,  and  other  countries  are  forging 
ahead  with  their  industrial  plans.  The  reason  for  this  attitude  on 
our  part  arises  largely  from  the  fear  engendered  by  the  prosecutions 
under  the  Sherman  Act.  At  the  present  time  the  business  man's 
complaint  is  that  he  does  not  know  when  he  is  right  or  when  he  is 


Methods  of  Dealing  with  the  Trust  Problem    565 

wrong ;  that  this  apparently  can  not  be  known  until  he  is  prosecuted 
and  his  case  reaches  the  court,  and  that  as  matters  now  stand  he  docs 
not  and  can  not  know,  as  he  proceeds  with  his  business,  whether  he 
is  a  good  citizen  or  a  criminal. 

Serious  as  this  phase  of  the  situation  is,  it  is  all  important  that  we 
do  not  commit  ourselves  to  a  permanent  national  policy  until  such 
commitment  can  be  made  in  a  calm,  dispassionate  frame  of  mind,  the 
people  having  had  ample  opportunity  to  weigh  the  pros  and  cons  of 
the  case.  While  this  is  true,  immediate  relief  is  clearly  desirable,  if 
such  relief  can  be  provided  along  conservative  lines. 

We  are  now  collecting  taxes  from  corporations,  which  in  itself  is 
the  first  step  in  establishing  the  principle  of  publicity  between  cor- 
porations and  government.  It  ought  not  to  be  unwise  or  difficult, 
therefore,  to  immediately  expand  the  powers  of  the  Department  of 
Commerce  and  Labor,  with  regard  to  publicity  and  control,  suffi- 
ciently to  create  a  board  of  control  with  power  to  license  such  in- 
terstate companies  as,  in  the  judgment  of  such  board,  are  clearly 
working  for  and  not  against  public  interest.  In  other  words,  in  such 
cases  substitute  a  board  of  this  sort  for  long-drawn-out  lawsuits. 
This  would  have  the  immediate  effect  of  placing  any  company  able 
to  secure  such  a  license  in  position  where  it  would  know  that  it  was 
proceeding  along  lines  not  in  violation  of  national  laws  or  Federal 
authority.  Such  concerns  as  could  not  or  did  not  wish  to  meet  this 
test  would  then  have  no  right  to  complain  if  they  were  proceeded 
against  under  the  Sherman  law. 

In  the  above-described  manner  immediate  relief  could  be  pro- 
vided. At  the  same  time  the  questions  surrounding  the  Sherman 
law  and  national  incorporation  for  interstate  industrial  companies 
would  be  under  an  investigation  that  would  be  proceeding  in  a 
calm  and  orderly  manner,  with  a  view  to  reaching  ultimately  a 
permanent  solution  of  the  whole  question.  Meanwhile,  uncer- 
tainty would  be  dispelled;  yet  we  would  only  be  building  up  our 
present  Department  of  Commerce  and  Labor  and  Bureau  of  Cor- 
porations into  a  live,  vital  bureau — much  in  the  same  way  that 
we  gradually  built  up  the  Interstate  Commerce  Commission  by 
extending  and  enlarging  its  powers  from  time  to  time. 


Senator  Watson.  You  spoke  of  the  best  efficiency  being  the 
test  of  success.  Do  you  think  that  under  the  present  laws  the 
best  efficiency  can  be  reached? 


566  Industrial  Combinations  and  Trusts 

Mr.  Perkins.  No, 

Senatoi  Watson.  Then,  as  I  understand  your  commission  idea, 
you  would  have  this  commission  allow  the  corporations  to  do 
practically  anything  that  did  not  interfere  with  the  public  interests 
that  the  corporations  ".'.anted  to  do? 

Mr.  Perkins.  Broadly  speaking,  that  is  about  it.  I  believe  that 
for  a  time  complete  publicity  of  the  corporation's  affairs,  through 
immission,  would  be  a  sufficient  guarantee  of  such  protection, 
and  that  from  that,  as  conditions  in  our  country  and  in  the  world 
developed,  we  could  add  further  specific  regulations  to  meet  chang- 
ing conditions. 

Senator  Watson.  Some  of  the  witnesses  have  advocated  uni- 
form prices  practically.    What  is  your  opinion  of  that? 

Mr.  Perkins.  I  believe  that  is  one  of  the  things  that  could  be 
taken  up  by  such  a  commission  and  probably  arrived  at  rather 
speedily,  and  I  believe  it  would  be  a  very  proper  thing  to  work  out 
as  fast  as  it  could  be  done  without  seriously  disturbing  our  domestic 
or  foreign  trade  in  any  given  corporation. 

Senator  Watson.  Would  you  have  that  worked  out  by  the  com- 
mission or  by  statute? 

Mr.  Perkins.  You  might  be  able,  in  that  particular  case,  to 
word  a  statute  that  would  substantially  cover  it,  but  I  do  not  think 
that  we  can  for  a  moment  lose  sight  of  the  fact  that  business  is  very 
different  from  transportation,  and  that  each  business  has  to  be 
conducted  somewhat  differently  from  its  brother  business,  and  of 
course,  as  a  whole,  it  is  a  very  delicate  network. 

Senator  Watson.  The  theory  worked  out  by  the  Interstate  Com- 
merce Commission  on  freight  rates  is  an  average  rate  confined  to 
zones,  as  you  understand? 

Mr.  Perkins.  Yes,  sir. 

Senator  Watson.  They  do  not  charge  the  same  rate  for  the  same 
service  always? 

Mr.  Perkins.  No. 

Senator  Watson.  They  charge  what  we  would  call  an  average 
rate,  for  instance.  They  may  have  the  same  commodity  for  a 
certain  city — three  rates? 

Mr.  Perkins.  Yes. 

Senator  Watson.  As  to  some  commodities  I  can  understand  why 
a  uniform  price  would  work  very  satisfactorily,  but  as  to  others 
I  think  it  would  mean  a  complete  change  in  freight  rate. 

Mr.  Perkins.  That  is  exactly  my  point. 


Methods  of  Dealing  with  the  Trust  Problem    567 

Senator  Watson.  So  you  might  work  that  out  on  certain  com- 
modities, and  as  to  others  you  would  not  want  the  same  rule? 

Mr.  Perkins.  That  is  exactly  it,  and  that  is  one  reason  why  I 
believe  it  is  going  to  be  extremely  important  to  have  a  commission 
like  that,  composed  largely  of  business  men  of  experience. 

If  I  may  take  your  time  for  a  moment— I  have  thought  about 
this  for  a  good  many  years — I  believe  that  a  commission  composed 
of  such  men  would  accomplish  a  good  many  things.  We  have  in 
this  country  no  goal  for  the  business  man  in  the  way  of  preferment, 
or  honorable  mention,  so  to  speak,  unless  he  eventually  goes  out 
of  business  into  public  life.  Now,  Europe  does  very  differently. 
In  Germany,  for  instance,  a  captain  of  industry  is  knighted  and 
here  he  is  indicted.  I  believe  that  if  we  establish  a  business  court 
of  that  sort  that  it  would  gradually  come  to  be  the  goal  of  the 
young  man  who  is  going  into  business.  They  would  say,  "Some 
day  or  another  I  may  be  called  to  serve  on  this  commission  or  court." 
I  think  it  would  be  a  steadying  influence  on  that  man's  whole 
business  career,  and  he  would  look  forward  to  it  like  the  lawyer 
does  to  the  Supreme  Court  as  possible  preferment,  and  that  man 
would  give  up  almost  any  business  calling  finally  to  be  a  member 
of  such  a  commission.  There  is  not  a  lawyer,  I  suppose,  in  the 
country  who  would  not  give  up  any  lucrative  practice  for  an  ap- 
pointment on  the  Supreme  Bench,  because  that  has  come  to  be  the 
goal — the  highest  degree  of  honor — and  if  it  is  said  that  it  would  be 
turning  business  over,  or  turning  the  Government  over  to  business, 
I  do  not  think  that  holds,  because  we  have  not  found  it  in  any 
respect,  certainly  not  in  regulation  of  our  railroads.  Take  another 
instance.  Our  Presidents  select  officials  from  corporation  life, 
like  Mr.  Knox  and  Mr.  Wickersham,  and  they  gave  up  lucrative 
businesses  and  went  into  these  offices,  and  have  stood  an  immense 
amount  of  abuse  from  their  old  friends  and  colleagues  and  associates. 
Yet  they  have  discharged  their  oath  of  office  as  they  saw  it  in  the 
interest  of  the  people.  I  believe  the  business  men  would  adopt  the 
same  course.  Mr.  John  Claflin,  of  New  York,  for  instance,  a  man 
who  had  reached  the  point  of  life  where  he  had  had  broad  experience, 
called  on  such  a  commission  as  that  would  go  on  it  and  give  to 
the  public  the  same  sort  of  service  that  he  had  been  giving  to  his 
own  business. 

You  could  have  a  commission  of  that  sort  of  seven  or  nine  men 
who  had  had  that  kind  of  experience  and  knew  the  trade  conditions 
of  the  world,  and  would  work  that  way  for  the  public  interest.    I 


568  Industrial  Combinations  and  Trusts 

think  you  can  easily  imagine  of  what  enormous  value  that  would 
be  to  our  people  in  their  own  affairs,  and  more  especially  to  us  in 
developing  our  foreign  trade. 

Senator  Brandegee.  I  have  only  a  question  or  two.  The  com- 
mission that  you  would  like  to  see  established,  1  believe  you  called 
it  a  business  court? 

Mr.  Perkins.  "A  rose  by  any  other  name"  would  suit  me  just 
as  well. 

Senator  Brandegee.  To  use  your  own  phraseology.  You  spoke 
of  having  a  business  court  established  in  the  Department  of  Com- 
merce and  Labor  before  whom  you  could  make  application  for 
Government  license,  if  I  recall  your  proposition? 

Mr.  Perkins.  Yes,  sir. 

Senator  Brandegee.  Would  you  allow  an  appeal  from  the  ruling 
of  the  commission  if  it  declined  to  issue  a  license? 

Mr.  Perkins.  I  think  so.  I  think  the  appeal  should  go  either 
to  the  Interstate  Commerce  Commission  or  some  court 

Senator  Brandegee.  You  mean  the  Court  of  Commerce? 

Mr.  Perkins.  The  Court  of  Commerce,  I  mean. 

Senator  Brandegee.  Now,  I  do  not  know  that  I  thoroughly 
comprehended  what  you  meant  to  give  this  business  court  in  the 
way  of  power.  You  would  give  it  the  power  to  license  applicants 
engaged  in  commerce  among  the  States  if  they  found  what? 

Mr.  Perkins.  At  the  beginning  I  would  give  them  power  to 
license  such  a  company  as  in  the  judgment  of  this  court  was  properly 
capitalized — conservatively  capitalized — and  conducting  its  busi- 
ness along  such  lines  as  to  commend  its  practices  to  the  judgment 
of  this  court,  and  cause  the  court  to  feel  that  it  was  working  in  the 
public  interest  rather  than  against  the  public  interest,  not  re- 
straining trade  unduly  or  acquiring  monopolistic  control,  and  with 
the  understanding  that  this  company  would  submit  its  affairs  in 
the  most  complete  manner  possible  to  this  court,  not  to  be  filed 
in  the  archives  of  this  court  and  regarded  as  purely  personal  to 
the  President  or  the  Attorney  General,  but  to  be  in  turn  made 
public  to  not  only  the  stockholders  of  this  company  but  to  the 
public,  so  that  competitors  could  know  the  general  methods  of  the 
company  and  the  public  could  know  the  methods  of  the  company ; 
and  that  is  about  as  far  as  I  would  go  at  the  start. 


Methods  of  Dealing  with  the  Trust  Problem     569 

As  different  question  x  came  up  in  connection  with  that  regulation 
and  control,  much  as  we  have  developed  the  regulations  and  control 
of  railroads,  we  could  expand  from  year  to  year;  but  I  believe  so 
thoroughly  that  publicity  of  the  right  sort  would  be  a  very  strong 
deterrent  on  the  management  of  any  company  from  doing  anything 
that  was  not  right,  and  would  be  so  convincing  to  the  public  that 
what  was  done  was  being  done  right,  that  we  would  find  ourselves 
relieved  from  the  necessity  of  resorting  to  a  long  schedule  of  fixed 
rules,  which  were  to  the  effect,  "Thou  shalt  not,"  "  thou  shalt  not," 
and  "thou  shalt  not." 

Senator  Brandegee.  You  would  put  in  those  things  that  you 
have  indicated  in  the  statute  creating  the  business  court  as  a  rule 
to  guide  the  business  court  in  determining  the  question  of  whom 
it  should  license  and  whom  it  should  not? 

Mr.  Perkins.  Yes,  sir. 

Senator  Brandegee.  Of  course,  that  would  have  to  be  carefully 
drawn  to  see  that  it  would  not  be  in  unreasonable  restraint  of  trade. 

Mr.  Perkins.  Yes,  sir. 

Senator  Brandegee.  And  on  those  questions  you  would  allow 
the  right  of  appeal  to  some  court  from  the  judgment  of  the  com- 
mission? 

Mr.  Perkins.  Yes,  sir.  As  it  is  now,  however,  whatever  may  be 
said  about  the  interpretation  of  the  Sherman  Act  by  the  court,  the 
plain  cold-blooded  fact  remains  that  as  we  stand  to-day,  unless 
through  the  steel  suit,  in  two  or  three  years,  or  some  other  suit  we 
find  some  other  interpretation,  we  have  got  to  apparently  pass 
through  a  long  series  of  lawsuits,  and  each  man  has  got  to  come  up 
and  have  his  corporation  passed  on  by  a  lawsuit. 

Now,  if  we  could  save  those  two  or  three  years  by  immediately 
creating  a  court  that  could  say  after  a  corporation  has  come  before 
it,  "  Now,  we  will  take  the  responsibility  of  saying  you  can  go  ahead 
so  long  as  you  keep  us  informed  about  what  your  practices  are,"  it 
would  help  very,  very  much. 

Senator  Brandegee.  Would  you  have  this  business  court  issue 
these  licenses  for  a  limited  period  of  time? 

Mr.  Perkins.  No,  sir;  I  do  not  think  that  is  feasible.  If  the  busi- 
ness was  legitimate  and  properly  started,  and  an  interstate  and  in- 
ternational business,  with  stockholders  in  large  numbers  every- 
where, I  think  it  should  be  given  all  the  elements  of  permanency 
possible. 

1  Thus  in  original. — Ed. 


Industrial  Combinations  and  Trusts 

Senator  BRANDEGEE.  I  inferred  from  your  last  statement  that 
the  license  you  contemplated  would  be  a  revocable  license  whenever 
in  the  judgement  of  the  business  court  the  corporation  was  not  act- 
ing to  suit  it? 

Mr.  Perkins.  I  certainly  would  give  the  court  the  right  to  re- 
voke the  license  with  the  right  of  appeal,  but  I  would  make  that  al- 
most the  last  resort;  that  is,  I  would  in  that  respect  control  the  cor- 
porations as  we  do  our  banks.  I  would  punish  the  individual  and 
exhaust  all  those  channels  before  I  actually  injured  the  existence  of 
the  company  itself,  because  we  must  remember  that  the  company 
can  not  do  anything  wrong.  It  is  not  a  live  thing;  it  is  a  creation  of 
man,  and  there  is  no  use  injuring  an  innocent  third  party  and  dis- 
turbing our  business  because  some  man  does  something  that  is  not 
right. 

Senator  Brandegee.  You  would  not  have  the  license  revocable 
then,  but  you  would  rely  upon  punishing  the  individuals  who  in- 
dulge in  any  unfair  practices? 

Mr.  Perkins.  Yes,  sir;  I  think  the  Government  should  always 
keep  the  right,  as  a  last  resort,  to  revoke  the  license,  but  I  think 
that  should  be  the  last  thing  it  should  do,  and  should  be  done  per- 
haps in  practice  not  at  all,  but  I  think  you  might  easily  have  cases 
where  people  would  be  imprisoned  for  having  violated  the  laws 
under  which  they  were  operating  or  the  laws  as  laid  down  by  this 
commission.    That  is  just  what  we  do  with  our  banks. 

Senator  Brandegee.  Do  I  understand  you  to  say  that  on  the 
question  of  whether  the  license  should  be  revoked  or  not  you  would 
allow  an  appeal  to  some  court  on  that  question? 

Mr.  Perkins.  I  would.  These  companies,  you  see,  have  come 
not  only  to  be  merchants,  but  they  have  come  to  be  trustees  for 
investments.  I  think  it  is  extremely  important  that  the  country 
understood  that  and  realized  that. 

Senator  Brandegee.  If  an  applicant  for  a  license  secured  the 
license,  you  then  say  until  it  was  revoked  you  would  have  the  appli- 
cants immune  from  prosecution  under  the  Sherman  antitrust 
law? 

Mr.  Perkins.  Yes,  sir.  Now,  you  see,  Senator,  if  he  said,  "  Well, 
I  do  not  want  this  license,"  or  "I  can  not  get  a  license,"  then  it 
seems  to  me  that  is  equivalent  to  the  Government  having  notice  that 
there  is  something  about  that  concern  that  ought  to  be  looked  into 
under  the  Sherman  law,  and  he  would  not  have  a  right  to  complain 
if  the  Government  did  proceed  against  him  because  he  would  have 


Methods  of  Dealing  with  the  Trust  Problem     571 

had  a  way  to  demonstrate  to  the  court  that  he  was  entitled  to  the 
license. 

Senator  Brandegee.  Any  corporation  indulging  in  commerce 
among  the  States  which  had  applied  for  a  license  and  been  denied 
the  license  by  this  business  court,  would  be  subject  to  prosecution 
or  a  bill  being  brought  against  them  under  the  Sherman  law? 

Mr.  Perkins.  Exactly. 

Senator  Brandegee.  And  all  those  who  had  been  licensed  would 
be  immune? 

Mr.   Perkins.  Yes,   sir. 

Senator  Brandegee.  So  that,  if  the  business  court  thought  that 
a  man  was  a  proper  subject  for  its  license  and  should  grant  it,  even 
if  the  Attorney  General  thought  it  was  directly  operating  in  viola- 
tion of  the  Sherman  law,  he  and  the  department  of  the  Govern- 
ment would  be  powerless  to  have  the  question  tested  in  the  circuit 
or  the  Supreme  Court  of  the  United  States  because  they  held  a 
license  from  this  business  court,  which  operated  as  an  immunity? 

Mr.  Perkins.  I  think  that  if  they  wanted  to  interpose  any  objec- 
tion they  ought  to  do  it  before  the  company  had  its  license.  I 
think  a  company,  once  having  had  a  license,  should  be  immune  so 
long  as  it  lived  up  to  the  condition  under  which  it  obtained  its 
license — that  is,  while  the  license  was  being  issued — if  the  Attorney 
General  wanted  to  interpose  an  objection  he  ought  to  have  the 
right  to  be  heard. 

Senator  Brandegee.  I  was  just  going  to  ask  you,  would  you  not 
provide  that  it  should  be  the  duty  of  some  Government  official — the 
Attorney  General  or  somebody  else — to  appear  in  behalf  of  the 
Government  at  the  time  the  corporation  was  applying  for  its  li- 
cense? 

Mr.  Perkins.  I  look  upon  this  court  as  in  behalf  of  the  Govern- 
ment. 

Senator  Brandegee.  So  do  I;  but  you  would  leave  it  a  matter  to 
be  determined  by  the  court  and  the  applicant  without  any  other 
department  of  the  Government. 

Mr.  Perkins.  I  see  no  objection.  For  instance,  if  your  course 
was  adopted  of  having  an  independent  court,  of  allowing  the  Bureau 
of  Corporations  to  interfere  or  interpose  by  the  Attorney  General. 

Senator  Brandegee.  As  I  understand  it,  it  would  not  be  your 
view  at  present  to  make  it  mandatory  on  the  Attorney  General  or 
the  Department  of  Justice  to  appear,  but  you  would  give  them  the 
right  to  appear  if  they  so  desired? 


572  Industrial  Combinations  and  Trusts 

Mr.  Pl:rkins.  I  think  I  would.  I  had  not  thought  of  that.  It 
is  a  new  suggestion,  but  I  think  that  might  not  be  an  improper 
thing. 

Senator  Brandegee.  You  spoke  in  answering  some  questions 
that  were  asked  you  about  whether  a  concern  controlling  75  per 
cent  of  the  business  would  be,  in  your  opinion,  in  restraint  of  trade 
or  not — if  I  recall  the  question,  or  whether  it  would  be  contrary  to 
any  provision  of  the  Sherman  law  or  the  antitrust  act.  Would  it  not, 
do  you  not  think,  lie  in  the  minds  of  the  people  who  are  contemplat- 
ing the  acquisition  of  75  per  cent  of  the  business  that  the  Govern- 
ment might  set  up  the  claim  that  the  mere  fact  of  the  control  of 
such  a  proportion  of  the  business  was  that  it  tended  to  show  an 
intent  to  monopolize  some  part  of  the  commerce  among  the  States, 
and  therefore  be  in  violation  of  the  second  section  of  the  law? 

Mr.  Perkins.  Yes;  I  think  that  is  one  of  the  disturbing  condi- 
tions to-day,  and  I  think  in  that  connection  that  sufficient  weight 
has  not  been  given  to  this  phase  of  it  at  all.  Those  of  us  who  have 
had  practical  business  experience  in  more  than  one  line  of  business 
especially,  know  that  a  certain  group  of  men  of  the  right  type  and 
ability  could  come  nearer  restraining  trade  and  monopolizing  trade 
with  40  per  cent,  we  will  say,  of  a  given  business  than  another  group 
of  men  might  with  75  per  cent  of  the  business.  So  that  it  is  not  the 
percentage  that  does  it,  but  it  is  the  men. 

Senator  Brandegee.  You  have  your  own  idea  of  what  you  mean 
by  the  words  "restraint  of  trade?" 

Mr.  Perkins.  Yes,  sir. 

Senator  Brandegee.  As  I  understand  you,  it  is  not  necessarily 
what  the  courts  have  decided  or  said  about  restraint  of  trade? 

Mr.  Perkins.  I  do  not  know  what  they  have  decided. 

Senator  Brandegee.  I  understand  you  to  say  that  you  think 
there  may  be  cases,  and  probably  are,  where  a  great  deal  of  a  certain 
kind  of  competition  may  have  been  eliminated  without  trade  having 
been  restrained  at  all,  but  on  the  contrary,  trade  having  been  pro- 
moted? 

Mr.  Perkins.  Exactly. 

Senator  Brandegee.  That  is  all. 

Senator  Newlands.  I  think  the  ground  has  been  covered  already 
by  some  of  the  questions  that  have  been  asked  recently,  but  I  simply 
wish  to  ask  you,  Mr.  Perkins,  regarding  agreements  limiting  produc- 
tion and  agreements  between  competitors  as  to  price.  What  do  you 
think  of  those? 


Methods  of  Dealing  with  the  Trust  Problem    573 

Mr.  Perkins.  I  think  they  are  very  largely  a  question  of  indi- 
vidual settlement.  Different  lines  of  business  vary  so  largely  ac- 
cording to  locality  and  environment,  and  all  that  sort  of  thing,  that  I 
think  that  has  got  to  be  worked  out  with  the  greatest  possible  care. 

Senator  Newlands.  Would  you  give  such  a  business  court  the 
power  to  approve  the  agreements  between  competitors  as  to  limi- 
tations of  production  with  a  view  to  preventing  overproduc- 
tion? 

Mr.  Perkins.  Do  you  mean  a  broad  principle  covering  every- 
thing? 

Senator  Newlands.  Yes. 

Mr.  Perkins.  No,  sir;  not  at  the  beginning,  I  would  not. 

Senator  Newlands.  How  about  prices;  would  you  give  them 
the  power  to  approve  agreements  as  to  uniform  prices? 

Mr.  Perkins.  No,  sir;  not  at  the  beginning.  I  would  let  that 
work  itself  out  after  wc  had  licensed  50  or  500  companies  who  would 
agree  absolutely  to  make  their  affairs  public;  if  a  man  is  not  willing 
to  do  that  then  he  ought  not  to  have  a  license,  in  my  judgment,  and  l 
if  he  does,  and  will  play  that  way,  I  believe  it  will  allay  a  great  deal 
of  the  difficulty.  You  see  these  questions  to  a  great  extent  are  re- 
volving around  what  might  be  known  as  the  wholesale  business. 
Now  we  gentlemen  all  remember  that  in  our  boyhood  days  there 
were  very  few  retail  stores  where  you  could  not  go  in  and  horse 
trade  for  what  you  wanted.  The  prices  were  not  marked  on  the 
goods,  and  there  were  all  sorts  of  prices.  Now  we  have  moved  along 
in  the  retail  business  to  a  point  where  we  can  go  down  any  street 
to  a  dozen  stores,  and  the  prices  are  all  open.  There  is  not  very 
much  trading.  You  know  what  it  is,  and  a  man  down  the  street, 
next  door,  knows  what  the  other  man's  price  is.  If  that  had  been 
suggested  to  our  fathers  they  would  have  thrown  up  their  hands  and 
said:  "Everybody  knows  all  about  our  prices;  we  can  not  make 
anything.''  But  we  have  worked  that  out  in  the  retail  business.  It 
is  an  open  book  as  to  what  prices  are,  yet  there  is  competition  and 
they  live.  But  in  these  larger  affairs  which,  for  want  of  a  better 
name,  you  call  wholesale  business,  there  is  still  all  that  secretive  way 
of  doing,  and  if  there  is  anything  that  tends  to  break  the  command- 
ment of  "Thou  shalt  not  bear  false  witness  against  thy  neighbor," 
it  is  the  method  by  which  large  contracting  and  bidding  for  con- 
tracts is  done  in  this  country,  because  the  whole  system  is  one  of 
deception  from  beginning  to  end.  It  is  all  built  up  around  the  idea 
1  In  the  original  this  line  and  the  line  above  were  transposed. — Ed. 


574  [NDUSTHIAL  COMBINATIONS  AND  Tin     i 

that  you  must  had  another  man  on  to  make  a  lower  bid,  and  th<  n 
lead  somebod)  else  on,  and  thai  is  supposed  to  be  competition. 

Now,  we  have  got  in  some  way  or  another,  with  the  enormous  de- 
velopment of  <uir  methods  of  intercommunication,  living  as  close  as 
we  do  together  in  the  world,  to  get  the  wholesaler,  the  corporation, 
on  something  like  a  basis  that  will  be  analogous  to  the  retail  business 
which  is  done  much  more  in  the  open  and  in  a  frank  manner.  You 
have  the  competition  there  just  the  same. 

Exhibit  9 
louis  d.  brandeis  j 

Mr.  Perkins's  argument  in  favor  of  the  efficiency  of  monopoly  pro- 
ceeds upon  the  assumption,  in  the  first  place,  and  mainly  upon  the 
assumption,  that  with  increase  of  size  comes  increase  of  efficiency. 
If  any  general  proposition  could  be  laid  down  on  that  subject,  it 
would,  in  my  opinion,  be  the  opposite.  It  is,  of  course,  true  that  a 
business  unit  may  be  too  small  to  be  efficient,  but  it  is  equally  true 
that  a  unit  may  be  too  large  to  be  efficient.  And  the  circumstances 
attending  business  to-day  are  such  tha,t  the  temptation  is  toward 
the  creation  of  too  large  units  of  efficiency  rather  than  too  small. 
The  tendency  to  create  large  units  is  great,  not  because  larger  units 
tend  to  greater  efficiency,  but  because  the  owner  of  a  business  may 
make  a  great  deal  more  money  if  he  increases  the  volume  of  his  busi- 
ness tenfold,  even  if  the  unit  profit  is  in  the  process  reduced  one- 
half.  It  may,  therefore,  be  for  the  interest  of  an  owner  of  a  business 
who  has  capital,  or  who  can  obtain  capital  at  a  reasonable  cost,  to 
forfeit  efficiency  to  a  certain  degree,  because  the  result  to  him,  in 
profits,  may  be  greater  by  reason  of  the  volume  of  the  business.  Now, 
not  only  may  that  be  so,  but  in  very  many  cases  it  is  so. 

And  the  reason  why  the  increasing  the  size  of  a  business  may  tend 
to  inefficiency  is  perfectly  obvious  when  one  stops  to  consider.  Any- 
one who  critically  analyzes  a  business  learns  this:  That  success  or 
failure  of  an  enterprise  depends  usually  upon  one  man;  upon  the 
quality  of  one  man's  judgment,  and,  above  all  things,  his  capacity 
to  see  what  is  needed  and  his  capacity  to  direct  others. 

1  Hearings  before  the  Committee  on  Interstate  Commerce  on  the  Control  of 
Corporations,  Persons  and  Firms  engaged  in  Interstate  Commerce.  62nd  Cong. 
2nd  Sess.  1911-1012,  pp.  1147-1152,  1157-1158,  1161,  1167,  1170-1171,  1174- 
1176,  1178-1179,  1236,  1256-1257,  1267-1271,  1274-1276. 


Mktiiods  or  Dealing  with  the  Trust  Problem    575 

Now,  while  organization  has  made  it  possible  for  the  individual 
man  to  accomplish  infinitely  more  than  he  could  before,  aided  as  he 
is  by  new  methods  of  communication,  by  the  stenographer,  the  tele- 
phone, and  system,  still  there  is  a  limit  to  what  one  man  can  no  '  well; 
for  judgment  must  be  exercised,  and  in  order  that  judgment  may  be 
exercised  wisely,  it  must  be  exercised  on  facts  and  on  a  comprehen- 
sion of  the  significance  of  the  relevant  facts.  In  other  words,  judg- 
ment can  be  sound  only  if  the  facts  on  which  it  is  based  are  both 
knowTn  and  carefully  weighed.  There  must  be  opportunities  for 
judgment  to  mature.  When,  therefore,  you  increase  your  business 
to  a  very  great  extent,  and  the  multitude  of  problems  increase  with 
its  growth,  you  will  find,  in  the  first  place,  that  the  man  at  the  head 
has  a  diminishing  knowledge  of  the  facts  and,  in  the  second  place,  a 
diminishing  opportunity  of  exercising  a  careful  judgment  upon  them. 
Furthermore — and  this  is  one  of  the  most  important  grounds  of  the 
inefficiency  of  large  institutions — there  develops  a  centrifugal  force 
greater  than  the  centripetal  force.  Demoralization  sets  in;  a  condi- 
tion of  lessened  efficiency  presents  itself.  These  manifestations  are 
found  in  most  huge  businesses — in  the  huge  railroad  systems  as  well 
as  in  the  huge  industrial  concerns.  These  are  disadvantages  that 
attend  bigness. 

Now,  that  mere  size  does  not  bring  efficiency,  does  not  produce 
success,  appears  very  clearly  when  you  examine  the  records  of  the 
trusts. 

In  the  first  place,  most  of  the  trusts  which  did  not  secure  a  domina- 
tion of  the  industry — that  is,  the  trusts  that  had  the  quality  of  size, 
but  lacked  the  position  of  control  of  the  industry,  lacked  the  ability 
to  control  prices — have  either  failed  or  have  shown  no  marked  suc- 
cess. The  record  of  the  unsuccessful  trusts  is  doubtless  in  all  your 
minds.  One  of  the  earliest  of  the  trusts  which  did  not  secure  control 
was  the  Whisky  Trust.  It  was  not  successful.  The  plight  of  the 
Cordage  Trust  and  of  the  Malting  Trust  was  wrorse.  Consider  other 
trusts  now  existing,  the  Print  Papers  Trust  (the  International  Paper 
Co.) ;  the  Writing-Paper  Trust  (the  American  Writing  Paper  Co.) ; 
the  Upper  Leather  Trust  (the  American  Hide  &  Leather  Co.);  the 
Union  Bag  Trust;  the  Sole  Leather  Trust;  those  trusts  and  a  great 
number  of  others  which  did  not  attain  a  monopoly  and  were  there- 
fore unable  to  fix  prices  have  had  but  slight  success  as  compared  with 
their  competitors.  You  will  find  daily  evidence  of  their  lack  of  suc- 
cess in  market  quotations  of  the  common  stock,  where  they  are 
1  Thus  in  original. — Ed. 


576  Industrial  Combinations  and  Trusts 

quoted  at  all,  and  the  common  stock  of  some  has  even  fallen  below 
the  horizon  of  a  quotation. 

Now  take,  in  the  second  place,  the  trusts  that  have  been  markedly 
successful,  like  the  Standard  Oil  Trust,  the  Shoe  Machinery  Trust, 
the  Tobacco  Trust.  They  have  succeeded  through  their  monopolistic 
position.  They  dominated  the  trade  and  were  able  to  fix  the  prices 
at  which  articles  should  be  sold.  To  this  monopolistic  power,  in 
the  main,  and  not  to  efficiency  in  management,  are  their  great  profits 
to  be  ascribed. 

Leaving  the  realm  of  industry  for  that  of  transportation,  com- 
pare the  failure  of  Mr.  J.  P.  Morgan's  creation — the  International 
Mercantile  Marine — and  the  astonishing  success  of  the  Pullman  Car 
Co.  The  transatlantic  steamship  trade  was  open  to  competition, 
and  could  not,  in  spite  of  its  price  agreements,  fix  rates  at  an  eleva- 
tion sufficient  to  be  remunerative.  The  Pullman  Co.,  possessing  an 
absolute  monopoly,  has  made  profits  so  large  as  to  be  deemed  uncon- 
scionable. 

In  the  third  place,  take  the  class  of  cases  where  the  trust  has  not 
controlled  the  market  alone,  but  exerted  control  only  through  virtue 
of  price  agreements  or  understandings,  as  did  the  Sugar  Trust  and 
the  Steel  Trust.  Those  trusts  paid  large  dividends,  because  they 
were  able  to  fix  remunerative  prices  for  their  product.  But  neither 
the  Sugar  Trust  nor  the  Steel  Trust  has  been  able  to  hold  its  own 
against  its  competitors. 

Take  it  in  the  Sugar  Trust.  At  the  time  of  the  Knight  case,  a 
little  less  than  20  years  ago,  the  Sugar  Trust  had  practically  the 
whole  business  of  the  country — I  think  the  Supreme  Court  report 
shows  something  like  95  per  cent.  The  company's  reports  to  the 
stockholders  of  1910,  as  I  recall  it,  show  that  the  company  now  con- 
trols only  42  per  cent  of  the  production  of  the  country. 

The  price  agreements  or  understandings  between  the  trust  and 
its  competitors  had  maintained  the  price,  but  they  could  not  main- 
tain for  the  trust  its  proportion  of  the  business.  The  Sugar  Trust's 
profits  were  maintained,  as  you  so  w7ell  know,  not  only  through  the 
price  agreements,  but  through  methods  that  were  vulgarly  criminal — 
through  false  weighing;  through  stealing  of  city  water;  through 
extensive  railroad  rebating. 

Then  take  the  Steel  Trust — that  is  a  younger  trust,  only  half  the 
length  of  life  of  the  Sugar  Trust.  But  in  the  Steel  Trust  you  have  a 
similar  manifestation  of  ebbing  prestige.  In  spite  of  all  this  extraor- 
dinary power  in  the  Steel  Trust,  the  control  of  raw  material,  the 


Methods  of  Dealing  with  the  Trust  Problem     577 

control  of  transportation,  the  control  of  certain  trade  through  its 
railroad  associations,  the  control  of  other  trade  through  its  money 
power — and  the  addition  of  the  Tennessee  Coal  &  Iron  Co. — in 
spite  of  all  this  the  Steel  Trust  has  been  a  steady  loser  in  percent- 
age of  the  iron  and  steel  business  of  this  country.  And  not  only 
has  it  been  a  steady  loser  in  the  percentage  of  business  in  this  coun- 
try, but  despite  its  ability  to  largely  maintain  prices,  notably  of 
steel  rails,  throughout  that  period,  the  later  years  show  a  diminish- 
ing return  upon  the  capital  invested  as  compared  with  the  earlier 
years  of  the  trust. 

What  does  that  indicate?  Does  it  not  indicate  a  lessened  effi- 
ciency, either  actually  or  relatively,  to  other  businesses? 

Supplement  those  facts  by  a  consideration  of  other  evidence  of 
the  state  of  efficiency  reached.  Efficiency  is  ordinarily  manifested 
in  two  ways:  One  is  in  respect  to  quality — whether  there  has  been  an 
advance  in  the  art  as  to  the  quality  of  the  products — and  the  other 
is  whether  there  has  been  an  advance  in  the  art  lessening  the  cost  of 
the  article. 

Now,  what  is  the  situation  in  regard  to  the  Steel  Trust?  There 
are  two  steel  products  in  common  use  in  the  United  States  in  which 
the  American  people  are  particularly  interested.  One  is  steel  rails; 
the  other  is  fence  wire.  The  Steel  Trust  has  failed  in  respect  of  both 
of  those  important  articles  of  production  to  keep  up  with  the  demand 
of  the  community — not  in  quantity,  but  in  quality. 


Another  test  of  efficiency  to  which  the  United  States  Steel  Corpo- 
ration has  been  subjected  and  which  it  has  failed  to  meet  is  this:  It 
has  shown  itself  unable  to  maintain  its  prestige  in  the  world's  com- 
petition. 

Now,  every  one  of  you  gentlemen  can  remember  the  situation  in 
respect  to  the  exportation  of  steel  10  or  11  years  ago.  England  was 
in  a  panic;  Germany  and  Belgium  were  in  terror  at  the  extraordinary 
reductions  in  cost  which  we  had  made  in  America  in  the  production 
of  steel. 

It  looked  almost  as  if  all  the  blast  furnaces  in  England  would  have 
to  be  closed  and  that  the  conditions  in  Belgium  and  Germany  would 
be  similar,  except  so  far  as  they  might  be  protected  in  their  home 
markets  by  a  tariff.  The  world  market  was  apparently  within  our 
grasp. 

What  is  the  situation  in  1911? 


578  Industrial  Combinations  and  Trusts 

The  world's  market  has  grown  immensely  during  the  intervening 
period.  Outside  the  home  markets  of  Germany  and  England  there 
is  a  demand  for  more  than  10,000,000  tons  a  year,  which  is  anybody's 
trade — that  is,  it  is  open  to  either  England,  Germany,  or  America, 
whoever  can  get  it.  What  has  been  our  course  of  events?  In  the 
last  four  years  the  capacity  of  the  United  States  Steel  Corporation 
has  been  utilized,  in  the  main,  to  an  extent  varying  from  55  to  75 
per  cent  of  its  capacity.  During  a  large  part  of  these  four  years  the 
United  States  Steel  Corporation  has  had  333  per  cent  of  unused 
capacity.  In  spite  of  that  fact  Germany  and  England  have  acquired 
most  of  the  increasing  world's  trade.  The  German  trade  in  this  very 
period  in  which  the  steel  corporation  has  been  in  existence  has  in- 
creased 500  per  cent. 

Mr.  Perkins  has  spoken  of  the  American  ability  which,  if  it  is  given 
fair  opportunity,  will  attain  commercial  results  far  beyond  anything 
that  may  be  expected  of  Germany,  and  yet  there  you  find  Germany 
and  England  running  away  with  the  world's  trade,  while  the  steel 
corporation  had  idle  one-third  of  its  plants,  representing  millions 
annually  in  interest  and  depreciation  charges. 

In  the  10  years  during  the  steel  corporation's  life  our  foreign 
steel  and  iron  tonnage  increased  from  1,154,000  to  1,533,000  tons, 
Germany's  tonnage  increased  from  838,000  to  4,868,000,  and 
the  United  Kingdom's  tonnage  increased  from  3,213,000  to 
4,594,000. 

Now,  what  is  the  explanation?  This  I  submit:  Owing  to  this  Steel 
Trust  consolidation  and  accompanying  condition  our  cost  of  manu- 
facturing steel  has  risen  to  such  a  point  that  we  can  not  compete 
successfully  with  those  countries  or  can  compete  only  to  a  limited 
extent.  We  have  been  losing  our  relative  position  in  the  great  mar- 
kets of  the  world.  That  is  a  very  significant  fact,  in  view  of  the 
contention  always  made  that  we  need  big  business  in  order  to  main- 
tain and  improve  our  position  in  the  world  market.  The  figures  show 
that  during  the  last  10  years,  coincident  with  the  existence  of  the 
Steel  Trust,  we  have  been  losing  our  prestige  in  the  world's  steel 
market,  and  at  the  same  time  the  Steel  Trust's  position  in  the  home 
market  has  been  lessened  by  the  inroads  of  its  independent  com- 
petitors. 

The  facts  point  to  the  conclusion  that  the  Steel  Trust,  in  spite  of 
the  personal  ability  of  its  managers,  is  disclosing  relative  ineffi- 
ciency. 


Methods  of  Dealing  with  the  Trust  Problem    579 

Mr.  Perkins  suggests  that  systems  of  profit  sharing  will  be  intro- 
duced only  by  the  great  publicly  owned  trusts.  Now,  in  Massachu- 
setts, in  Senator  Crane's  home  State,  we  have  had  very  different 
ideas  in  this  respect  and  can  offer  very  different  examples  of  profit 
sharing  as  means  of  solving  these  industrial  problems.  Only  recently 
the  Dennison  Manufacturing  Co.,  one  of  our  most  successful  indus- 
tries, was  capitalized  at  $5,000,000,  with  preferred  stock  entitled  to 
8  per  cent.  But  the  idea  of  its  owners  of  real  industrial  profit  sharing 
is  this:  Every  cent  that  is  earned  by  that  corporation  in  excess  of  the 
dividends  upon  the  preferred  stock  is  distributed  among  those  (or 
some  of  those)  who  do  the  work,  and  in  the  proportion  of  their  sup- 
posed contribution  to  the  success  of  the  business.  That  is,  the  profits 
are  applied  in  the  exact  proportion  to  the  salaries  paid.  The  Denni- 
son idea  of  profit  sharing  is  to  give  the  capital  a  liberal  return  (and  as 
it  seems  to  me,  perhaps  too  liberal)  and  after  that  liberal  return  to 
give  to  those  who  do  the  work  all  the  rest  of  the  profit  in  addition  to 
their  fixed  salaries  and  wages.  The  Dennisons  are  a  relatively  small 
concern  as  compared  with  this  great  Steel  Corporation.  But  that 
same  principle  is  applied  in  a  number  of  other  and  still  smaller  busi- 
nesses, with  some  of  which  I  am  intimately  acquainted. 


What  have  these  trusts  done  for  the  consumer?  Until  the  Com- 
missioner of  Corporations  made  his  admirable  investigations  into  the 
Oil  Trust  and  the  Tobacco  Trust  we  were  constantly  told  that  they 
were,  by  their  efficiency,  reducing  the  price  to  the  consumer.  That 
claim  ought  now  to  be  completely  exploded,  as  the  result  of  this 
skillful  and  elaborate  investigation,  conducted  throughout  five  or  six 
years,  for  the  facts  clearly  prove  the  contrary.  The  trusts  have  not 
reduced  prices.  So  far  as  prices  have  been  reduced,  it  has  been  in 
spite  of  the  trusts. 

As  compared  with  the  relatively  high  prices  and  exorbitant  profits 
in  the  trust-controlled  articles  I  want  to  call  your  attention  to  the 
trend  of  prices  and  profits  in  the  book-paper  business,  facts  of  par- 
ticular significance,  because  the  principal  raw  material  of  paper — 
namely,  wood — is,  as  you  know,  constantly  advancing  in  cost. 

Now,  while  oil  and  steel  and  tobacco  prices  have  been  rising,  or 
have  remained  stationary,  and  while  the  rate  of  profit  in  oil  and  to- 
bacco has  grown  larger,  here  are  some  figures  on  book  paper.    In  1889 


580  Industrial  Combinations  and  Trusts 

the  average  price  of  book  paper  in  one  of  the  large  mills  was  a  trifle 
over  7  cents  a  pound — 7.06  cents  a  pound.  From  that  date  until 
1910  the  price  of  book  paper  has  been  almost  constantly  declining, 
in  spite  of  the  increased  cost  of  raw  material,  and  in  spite  of  the  in- 
creased wages.  As  I  said,  in  1889  it  was  7.06  cents.  In  1890,  that 
one  year  the  boom  came  in,  and  the  price  rose  to  7.1  cents.  In  1891 
it  took  its  natural  course  under  competition  and  was  down  to  6.8 
cents.  In  1892,  although  that  was  a  period  of  expansion  in  industry, 
it  was  down  to  6.5  cents.  In  1893  it  was  6.3  cents.  Then  it  dropped 
into  the  5  cents.  By  1907  it  got  into  the  fours.  And  later  it  got  into 
the  threes.  And  the  average  price  in  1910,  as  I  have  here,  was  3.99 — 
a  trifle  under  4  cents. 

During  that  time  the  cost  of  manufacture  in  this  highly  competitive 
industry  was,  of  course,  also  diminishing,  but  not  as  rapidly,  or  not 
nearly  as  rapidly,  as  the  selling  price,  because  competitive  conditions 
were  constantly  reducing  the  ratio  of  profit  upon  that  selling  price. 
And  whereas  the  profit  started  at  about  20  per  cent  on  the  cost,  it  got 
down  in  10  years  to  13  per  cent  on  cost,  and  at  the  end  of  another  10 
years  it  got  down  to  7  per  cent  on  cost.  You  have  there  the  most  per- 
fect illustration  of  what  competition  does  in  compelling  the  owner  of 
an  industry  to  find  some  way  of  reducing  costs  as  a  condition  of  living. 

Now  I  will  show  you  what  that  way  was.  It  was  not  by  pursuing 
the  way  of  the  steel  corporations,  of  increasing  the  hours  of  labor,  or 
decreasing  wages.  It  was  just  the  opposite.  Senator  Crane  will 
remember  that  in  this  very  period  which  those  figures  cover  there 
came  a  beneficent  change  in  the  conduct  of  this  industry  (which,  like 
the  steel  industry,  and  perhaps  to  a  greater  extent  than  the  steel 
industry)  requires  a  continuous  process;  that  is,  paper  making  is  a 
24-hour  process  in  many  of  its  departments.  Ten  years  ago  and 
before  these  mills  were  running  their  tour  workers  on  12-hour  shifts. 
Labor  unions  started  the  agitation  for  an  8-hour  day.  This  was 
one  of  the  industries  where,  in  the  main,  there  could  be  no  compromise 
on  a  10-hour  day,  because  these  paper  machines  and  the  incidental 
machines  had  to  run  continuously  24  hours  a  day,  6  days  in  the  week. 
The  10-hour  compromise  was  impossible.  It  was  either  8  hours, 
as  the  men  demanded,  or  12  hours.  The  reduction  of  working 
time  to  8  hours  was  made,  not  only  in  mills  where  the  union  mani- 
fested itself,  but  in  other  mills  where  there  was  no  union  labor  what- 
soever. For  the  unions  had,  in  this  respect,  as  in  many  other 
respects,  created  a  standard  to  which  the  industry  had  to  accommo- 
date itself.    The  manufacturers,  therefore,  in  this  period  reduced  the 


Methods  of  Dealing  with  the  Trust  Problem    581 

working  time  of  their  labor,  while  their  price  of  by-product  was 
steadily  going  down,  and  their  own  percentage  of  profit  was  steadily 
going  down,  and  while  the  cost  of  raw  material  was  steadily  going 
up.  Hours  of  labor  in  all  those  departments  were  reduced  33  £ 
per  cent — from  12  hours  to  8  hours.  And  yet  while  the  employers 
made  that  reduction,  instead  of  reducing  wages  proportionately, 
the  wages  increased. 

Take  the  wages  in  1900.  The  wages  of  these  machine  tenders  for 
12  hours  were  $2.43;  in  1910  to  191 1  the  wages  for  8  hours  were 
$2.71.  In  other  words,  if  the  hourly  rate  of  wages  be  considered, 
you  have  an  increase  there  of  wages  of  about  the  equivalent  of  66 
per  cent. 


These  are  some  of  the  reasons  why,  in  my  opinion,  this  com- 
mittee should  address  itself  to  perfecting  the  Sherman  law,  in  the 
light  of  the  experience  of  the  past  21  years.  We  have  learned  much 
about  trusts  and  their  ways  in  these  21  years,  and  this  knowledge 
the  La  Follette  bill  undertakes  to  use.  There  has  been  a  lot  of  talk 
about  the  uncertainty  of  the  Sherman  law,  and  of  the  doubt  felt 
as  to  what  is  reasonable  and  what  unreasonable  restraint.  The 
difficulty  in  finding  out  what  is  prohibited  is,  even  now,  far  less 
than  has  been  suggested. 


Senator  Cummins.  Do  not  confine  yourself  to  categorical  answers, 
but  give  us  your  views  upon  the  subject  that  may  be  contained  in 
the  question. 

Mr.  Brandeis.  I  thank  you.  I  have  had  no  belief  that  up  to 
the  present  time  a  question  had  arisen  in  regard  to  any  corporation 
in  that  narrow  form  in  which  you  put  it ;  that  is,  each  one  of  the 
large  corporations  I  have  had  to  deal  with  have  been  objectionable 
on  grounds  other  than  size  merely.  I  have  considered  and  do  con- 
sider that  the  proposition  that  mere  bigness  can  not  be  an  offense 
against  society  is  false,  because  I  believe  that  our  society,  which 
rests  upon  democracy,  can  not  endure  under  such  conditions. 
Something  approaching  equality  is  essential.  You  may  have  an 
organization  in  the  community  which  is  so  powerful  that  in  a  par- 
ticular branch  of  the  trade  it  may  dominate  by  mere  size.  Although 
its  individual  practices  may  be  according  to  rules,  it  may  be,  never- 
theless, a  menace  to  the  community;  and  I  may  add  further  that, 


582  Industrial  Combinations  and  Trusts 

in  my  opinion,  it  was  bad  legislation  which  removed  all  limits  to 
the  size  of  corporations,  as  we  did  from  10  to  20  years  ago. 


Senator  Cummins.  Precisely;  I  was  just  coming  to  that.  Health- 
ful and  reasonable  and  effective  competition  is  hardly  to  be  looked 
for  so  long  as  there  is  a  community  of  interest  in  so-called  competing 
corporations,  I  suppose. 

Mr.  Brandeis.  I  so  believe. 

Senator  Cummins.  That  seems  to  be  a  deduction  from  what  we 
know  of  human  nature,  and  therefore  if  we  could  provide  that  these 
great  concerns  should  not  have  common  stockholders  we  would  make 
a  very  considerable  advance  toward  reasonable  competition,  I  as- 
sume. 

Mr.  Brandeis.  I  think  so;  but  I  think  that  the  question  of  the 
limitation  of  the  size  of  the  corporation,  if  we  had  an  effective  law 
regulating  trusts,  would  not  become  an  urgent  question  very  soon, 
although  it  may  be  a  simple  way  of  arriving  at  the  result.  To  express 
a  little  more  clearly  what  I  mean,  I  will  say  this:  I  believe  that  the 
existing  trusts  have  acquired  the  position  which  they  hold  largely 
through  methods  which  are  in  and  of  themselves  reprehensible.  I 
mean  either  through  methods  which  are  abuses  of  competition  or  by 
such  methods  as  were  pursued  by  the  steel  corporation  in  paying 
ridiculous  values  for  property  for  the  purpose  of  monopolistic  control. 

I  am  so  firmly  convinced  that  the  large  unit  is  not  as  efficient — I 
mean  the  very  large  unit — is  not  as  efficient  as  the  smaller  unit,  that 
I  believe  if  it  were  possible  to-day  to  make  the  corporations  act  in 
accordance  with  what  doubtless  all  of  us  would  agree  should  be  the 
rules  of  trade  no  huge  corporation  would  be  created,  or,  if  created, 
would  be  successful.  I  do  not  mean  by  that  to  say  that  it  is  not 
good  to  have  the  limitation  in  the  law.  What  I  mean  is  that  I  am  so 
convinced  of  the  economic  fallacy  in  the  huge  unit  that  if  we  make 
competition  possible,  if  we  create  conditions  where  there  could  be 
reasonable  competition,  that  these  monsters  would  fall  to  the  ground, 
that  I  do  not  consider  the  need  of  such  a  limitation  urgent. 

Senator  Cummins.  By  that  you  mean,  I  take  it,  at  least  partially, 
that  if  we  had  some  regulation  which  would  insure  honest  capitaliza- 
tion— that  is,  bonds  and  stocks,  that  measure  of  actual  value  of  the 
property  taken  in  by  the  corporation — there  would  be  a  greatly  less 
motive  for  bringing  them  together? 

Mr.  Brandeis.  I  mean  that;  but  I  mean  something  more,  and  it  is 


Methods  of  Dealing  with  the  Trust  Problem    583 

this:  Go  back  and  see  what  the  real  commanding  cause  was  of  the  for- 
mation of  these  trusts.  In  the  first  place,  I  do  not  believe  the  desire 
for  greater  efficiency  was  an  important  moving  cause.  The  potent 
causes  were  two  things — one  was  to  avoid  what  those  interested 
deemed  destructive  or,  at  least,  very  annoying  competition;  the  other 
cause,  an  extremely  effective  cause,  was  the  desire  of  promoters  and 
bankers  for  huge  commissions.  The  amount  of  Steel  Trust  repre- 
senting bankers'  commissions  was  figured  by  the  Commissioner  of 
Corporations  as  $150,000,000  in  securities. 


Senator  Newlands.  Mr.  Brandeis,  what  limit  would  you  place 
upon  the  size  of  corporations? 

Mr.  Brandeis.  I  should  not  think  that  we  are  in  a  position  to-day 
to  fix  a  limit,  stated  in  millions  of  dollars,  but  I  think  we  are  in  a 
position,  after  the  experience  of  the  last  20  years,  to  state  two  things: 
In  the  first  place,  that  a  corporation  may  well  be  too  large  to  be  the 
most  efficient  instrument  of  production  and  of  distribution,  and, 
in  the  second  place,  whether  it  has  exceeded  the  point  of  greatest 
economic  efficiency  or  not,  it  may  be  too  large  to  be  tolerated  among 
the  people  who  desire  to  be  free.  I  think,  therefore,  that  the 
recognition  of  those  propositions  should  underlie  any  administra- 
tion of  the  law.  As  I  stated  before,  I  believe  that  it  was  a  very 
serious  mistake  on  the  part  of  our  legislators  to  remove  the  limit  of 
the  assets  and  of  capitalization  of  corporations;  that  they  did  not 
fully  consider  what  they  were  doing.  I  believe  it  is  historically 
true  that  that  limit  was  removed  without  serious  consideration 
by  the  legislators  of  the  country  of  the  probable  effect  of  their 
action. 

Senator  Newlands.  Do  you  think  it  would  be  in  the  power  of  the 
United  States  Government,  by  act  of  Congress,  to  limit  the  size 
of  State  corporations  engaged  in  interstate  commerce,  either  in 
point  of  size,  capitalization,  or  area  of  their  operations? 

Mr.  Brandeis.  I  do  not  suppose  it  would  be  constitutional  in 
one  sense  to  limit  their  size,  but  I  suppose  Congress  would  possess 
the  constitutional  power  to  confine  the  privilege  of  interstate  com- 
merce to  corporations  of  a  particular  character. 

Senator  Newlands.  You  have  no  question  about  that  power? 

Mr.  Brandeis.  I  should  think  not. 

Senator  Newlands.  It  would  be  necessary  to  fix  some  standard, 
would  it  not? 


584  Industrial  Combinations  and  Trusts 

Mr.  Brandeis.  I  think  so;  yes,  sir. 

Senator  Newlands.  Upon  which  or  by  which  the  administrative 
bureau  or  commission  charged  with  the  duty  could  determine 
whether  the  corporation  was  of  a  size  that  threatened  to  become 
a  monopoly  or  that  threatened,  as  you  say,  social  efficiency.  Now, 
what  standard  would  you  fix;  how  would  you  phrase  it? 

Mr.  Brandeis.  I  do  not  think  that  I  am  able  at  this  time  to 
state  the  exact  provision  which  I  should  make.  I  feel  very  clear 
on  the  proposition,  but  I  do  not  feel  equally  clear  as  to  what  ma- 
chinery should  be  invoked  or  the  specific  provision  by  which  that 
proposition  could  be  enforced. 

Senator  Newlands.  You  do  not  think  that  standard  should  be 
fixed  in  dollars;  you  have  already  stated  that. 

Mr.  Brandeis.  I  am  very  clear  that  the  maximum  limit  could 
not  be  properly  fixed  in  dollars,  because  what  would  be  just  enough 
for  one  business  would  be  far  too  much  for  many  others. 


Senator  Newlands.  And  yet,  if  you  were  establishing  to-day  a 
standard  to  which  corporations  hereafter  organized,  we  will  say, 
for  the  purpose  of  engaging  in  both  interstate  and  State  commerce, 
should  conform,  you  would  not  permit  any  such  corporation  to  con- 
trol 40  per  cent  of  the  business,  would  you? 

Mr.  Brandeis.  I  do  not  think  I  should.  I  mean  the  more  I  have 
thought  of  it  the  less  inclined  I  have  been  to  allow  that. 

Senator  Newlands.  Would  you  be  willing  to  allow  one-tenth  in 
a  country  as  large  as  this? 

Mr.  Brandeis.  I  am  inclined  to  think  it  could  control  one-tenth 
with  perfect  safety. 

Senator  Newlands.  You  would  not  go  below  that? 

Mr.  Brandeis.  I  would  not  prohibit  it,  and  I  should  be  per- 
fectly prepared  to  allow  any  appreciable  larger  percentage  to  be 
controlled  by  one  company. 

Senator  Newlands.  You  say  you  would  be? 

Mr.  Brandeis.  I  would  be  prepared  to  allow  considerably  more 
than  one-tenth.  The  doubt  I  had  was  whether  40  was  not  too 
much,  and  I  was  going  down  from  40. 

Senator  Newlands.  Now,  if  you  were  to  establish  such  a  stand- 
ard, would  you  apply  it  only  to  corporations  hereafter  organized  or 
endeavor  to  apply  it  to  corporations  already  organized? 

Mr.  Brandeis.  I  should,  in  the  first  place,  naturally  apply  it  to 


Methods  of  Dealing  with  the  Trust  Problem    585 

those  corporations  already  organized  which  had  been  organized 
in  violation  of  the  Sherman  antitrust  law.  .  .  . 


Senator  Newlands.  Yo*u  referred  to  the  unfair  methods  of 
killing  competition,  and  you  gave  a  statement  of  a  number  of 
things  which  should  be  forbidden.  How  would  you  make  those 
unfair  methods  impossible?  Would  you  punish  the  corporation, 
or  the  individual,  or  the  officials? 

Mr.  Brandeis.  I  should  punish  both;  I  mean  I  think  the  law 
as  it  stands,  giving  an  opportunity  of  fine  and  giving  an  opportunity 
of  improvement,  is  proper;  but  I  should  give — what  I  should  expect 
would  be  even  more  effective  as  a  deterrent — the  rights  to  the 
injured  individual  to  enforce  through  the  Government  action,  in 
a  practically  automatic  way,  his  claim  for  treble  damages,  as  set 
forth  in  the  La  Follette  bill.  That  would  prove  a  very  serious 
burden  upon  law-violating  corporations. 

Senator  Newlands.  You  spoke  of  community  of  interests  being 
a  factor  in  the  prevention  of  competition.  Take  the  shoe  factories 
in  New  England.  There  are  a  number  of  them,  I  presume,  are  there 
not? 

Mr.  Brandeis.  Yes,  sir. 

Senator  Newlands.  A  very  large  number? 

Mr.  Brandeis.  In  Massachusetts  there  are  over  400. 

Senator  Newlands.  Would  it  be  practicable  there,  do  you  think, 
to  prevent  individuals  from  owning  stock  in  half  a  dozen  shoe 
factories,  or  otherwise? 

Mr.  Brandeis.  I  think  it  would  be  perfectly  practicable.  I 
think  as  a  matter  of  fact  it  is  very  uncommon  to-day. 

Senator  Newlands.  Do  you  say  it  is  very  uncommon? 

Mr.  Brandeis.  It  is  very  uncommon  to-day.  I  think  in  the 
shoe  industry — I  mean  in  the  mere  manufacture,  say,  of  shoes — 
there  is  at  present  the  most  perfect  instance  of  competition  and 
evidences  of  the  value  of  competition  probably  of  any  industry  in 
the  country. 

Senator  Newlands.  Do  you  mean  to  say  that  a  person  seeking 
investments  in  the  stock  of  a  shoe  factory  would  always  confine 
his  investment  to  any  particular  factory? 

Mr.  Brandeis.  I  do  not  mean  to  say  they  would  always  do  so; 
but  I  should  feel  perfectly  sure  that  there  was  no  appreciable 
number  of  persons  who  invest  in  more  than  one  company  except 


586  Industrial  Combinations  and  Trusts 

in  those  instances  which  I  happen  to  know  about  of  particular  men 
who  are  now  practically  partners  in  three  or  four  or  five  businesses. 

Senator  Nkwlands.  What  I  wanted  to  get  at  is,  would  you 
forbid  an  investor  in  the  stock  of  one  corporation  from  holding 
stock  in  another  corporation  doing  the  same  business? 

Mr.  Brandeis.  I  do  not  believe  that  the  situation  requires  such 
legislation.  Take  it  in  the  shoe  business.  There  are  1,918  shoe 
manufacturers  in  the  United  States,  or  there  were  at  the  time  of  the 
last  census.  The  largest  shoe  manufacturer  in  the  United  States 
does  only  a  very  large  *  percentage  of  the  total  business.  You  have 
a  situation  in  that  business  where  there  is  not  the  slightest  danger 
at  the  present  time  of  the  suppression  of  competition.  But  when 
you  are  dealing,  for  instance,  with  the  tobacco  case,  where  you  are 
trying  to  break  up  a  combination,  or  where  the  control  of  the  busi- 
ness has  gone  into  such  few  hands  that  it  is  easy  for  three  or  four 
or  five  or  seven  or  nine  people  to  come  together  and  control  an 
industry,  then  you  have  a  situation  where  common  ownership  is 
absolutely  destructive  of  competition. 


Senator  Lippitt.  But,  granting  all  that — which  is  one  of  the 
incidental  advantages  of  large  size — you  still  believe  that  in  the 
end  the  very  bulk  itself  would  prove  a  disadvantage  and  the 
smaller  reasonably  sized  competitor  would  take  away  the  business 
or  diminish  it? 

Mr.  Brandeis.  I  believe  it  would,  provided  the  law  efficiently 
protects  that  smaller  unit  against  ruthless  destruction  through 
methods  of  unfair  competition. 

Senator  Lippitt.  Taking  the  laws  exactly  as  they  stand  to-day, 
do  you  believe  that  if  there  was  no  change  in  the  laws,  and  matters 
were  allowed  to  go  on  as  they  are  going,  that  the  result  would  be 
the  survival  of  the  moderate-sized  competitor,  or  do  you  believe 
it  would  be  the  absorption  of  the  business  by  one  huge  organization? 

Mr.  Brandeis.  In  many  instances  I  think  it  would  be  the  absorp- 
tion of  the  business  by  huge  organizations,  because  the  power  of 
endurance  of  competitors  becomes  exhausted,  and  it  has  been 
entirely  overcome  in  a  great  many  cases,  for  instance,  the  shoe- 
machinery  case. 

Senator  Lippitt.  Taking  all  the  features  of  it,  you  do  not  believe 
that  the  medium-size  competitor  would  be  the  successful  one? 
1  "  Small  "  probably  intended. — Ed. 


Methods  of  Dealing  with  the  Trust  Problem     587 

Mr.  Brandeis.  Not  without  congressional  aid,  because  I  think 
you  need  not  only  the  law  but  enforcement  of  the  law. 


Senator  Gore.  I  understood  you  to  say  the  other  day  that  you 
opposed  any  method  of  licensing? 

Mr.  Brandeis.  Yes,  sir. 

Senator  Gore.  Any  method  of  licensing  corporations  engaged  in 
interstate  commerce? 

Mr.  Brandeis.  Yes,  sir. 

Senator  Gore.  By  that  do  you  mean  a  license  that  would  consti- 
tute a  sort  of  passport  or  examination  of  health  and  one  that  would 
extend  immunity  from  prosecution? 

Mr.  Brandeis.  Precisely;  or  which  might  be  so  construed  by  the 
community,  although  it  did  not  actually  do  so. 

Senator  Gore.  I  want  to  ask  you  this:  Merely  a  requirement  that 
any  company  engaged  in  interstate  commerce,  without  reference  to 
method  or  manner  of  organization  or  object,  could  make  application 
to  some  constituted  authority  for  a  license  to  engage  in  commerce, 
say  for  a  nominal  fee  of  a  dollar,  and  allowed  to  have  no  other  certifi- 
cate than  merely  registration — that  so  far  would  not  be  objection- 
able? 

Mr.  Brandeis.  It  would  only  be  objectionable  in  that  it  probably 
would  be  put  to  an  illegitimate  use.  That  is,  it  would  be  used  as 
representing  practically  that  the  Government  is  ratifying  or  indorsing 
the  propriety  of  its  acts,  just  as  these  certificates  are  found  now  upon 
cans  registered  under  the  pure  food  act,  etc. 

Senator  Gore.  What  I  have  in  mind  is  merely  a  license,  like  a 
saloon  man  gets  to  sell  liquor — that  it  is  purely  formal  and  perfunc- 
tory to  that  extent. 

Mr.  Brandeis.  I  see  no  occasion  or  no  advantage  in  having  a 
license.  We  have  the  situation  now,  that  every  corporation  must 
make  a  return  for  the  purpose  of  taxation. 

Senator  Gore.  I  was  coming  to  that.  In  case  we  require  a  license, 
then  make  it  a  part  of  any  judgment  against  the  concern,  and  let  the 
revocation  of  this  license  deny  the  right  to  engage  in  interstate  com- 
merce. 

Mr.  Brandeis.  I  do  not  believe  that  that  provision,  if  it  should  be 
made,  is  one  of  great  practical  value  or  importance. 

Senator  Gore.  I  do  not  think  it  would  constitute  a  strong  de- 
terrent. 


Industrial  Combinations  and  Trusts 

Mr.  Brandeis.  I  do  not  think  it  would  constitute  any  strong  de- 
terrent. Among  other  reasons  for  this:  It  is  a  matter  of  the  greatest 
simplicity  and  of  negligible  cost  to  dissolve  a  corporation  and  rein- 
corporate another.  The  question  is,  What  is  going  to  be  done  with 
this  property?  and  not  the  question  as  to  whether  or  not  an  individual 
corporation  has  a  license  or  is  denied  a  license.  Are  we  going  to  take 
an  appreciable  part  of  that  property  as  compensation  for  a  wrong 
that  has  been  done  individuals?  That  is  an  important  question. 
Are  we  going  to  have  that  property  distributed  under  conditions 
which  prevent  its  being  used  to  destroy  competition  or  restrain  com- 
petition seriously?  That  is  an  important  question.  But  the  ques- 
tion whether  an  individual  corporation  can  continue  to  do  business 
as  the  "A"  company  of  one  State,  when  it  will  become  the  next  day 
the  "A"  company  of  Massachusetts  or  Rhode  Island,  is  absolutely 
of  no  practical  importance. 

Senator  Gore.  That  raises  this  question  in  my  mind:  What  do 
you  think  about  the  criminal  prosecution  and  punishment  for  direc- 
tors and  those  who  engaged  in  these  practices? 

Mr.  Brandeis.  I  think  the  criminal  law  is  an  extremely  important 
adjunct,  if  it  is  enforced.  It  has  certainly  had  a  stimulating  effect 
in  connection  with  violations  of  the  interstate  commerce  act  of  a 
very  extraordinary  character.  Men  were  ready  to  do  almost  any- 
thing that  they  knew  to  be  wrong  until  the  vision  of  a  jail  rose  up  be- 
fore them. l  And  it  is  an  extraordinary  thing.  I  think  it  is  perhaps 
a  special  testimony  to  the  love  of  liberty  on  the  part  of  an  American 
that  the  real  thought  of  going  to  jail  is  almost  paralyzing  to-day; 
and  men  who  violated  the  interstate  commerce  law  daily  and  with- 
out any  compunction,  when  it  really  came  before  them — the  idea 
that  the  criminal  proceedings  were  going  to  be  resorted  to — suddenly 
became  obedient,  law-abiding  American  citizens. 


Senator  Cummins.  Mr.  Brandeis,  I  want  to  take  up  for  a  little 
while  the  proposal  that  has  been  suggested  for  licensing  corpora- 
tions engaged  in  commerce  among  the  States  and  with  foreign  na- 
tions. So  far  as  this  inquiry  is  concerned,  I  assume  that  the  ideal 
condition  would  be  one  in  which  all  corporations  engaged  in  inter- 
state commerce  were  in  consonance,  so  far  as  organization  goes  and 
in  respect  to  their  practices  and  methods,  with  the  antitrust  law 
and  any  amendment  that  may  be  made  to  it.  That  is  the  condition 
1  Italics  in  this  paragraph  are  the  editor's. 


Methods  of  Dealing  with  the  Trust  Problem    589 

we  want  to  reach.    The  Interstate  Commerce  Commission  stands 
very  high  in  the  confidence  of  the  people,  does  it  not? 
Mr.  Brandeis.  To-day;  yes,  sir. 


Senator  Cummins.  And  in  the  same  way,  we  could  ascertain 
whether  a  corporation  organized  as  was  proposed,  by  reason  of  its 
power  or  extent  would  be  a  monopoly,  or  an  attempt  to  create  a 
monopoly,  under  the  second  section  of  the  antitrust  law,  could  we 
not? 

Mr.  Brandeis.  That  would  be  possible. 

Senator  Cummins.  Now,  do  you  not  believe  that  a  commission 
properly  organized  could  pass  on  questions  of  that  character  so 
that  the  people  of  the  country  would  be  better  protected  than  to 
await  the  final  decision  of  the  court  after  years  of  litigation? 

Mr.  Brandeis.  I  am  not  certain,  Senator  Cummins,  that  I  under- 
stand your  question.  But  I  assume  that  it  applies  or  would  apply 
to  practically  all  corporations  that  desire  for  the  future  to  engage 
in  interstate  commerce. 

Senator  Cummins.  I  am  imagining  now  that  we  have  a  clean 
sheet,  and  are  simply  providing  against  the  future.  I  will  come  to 
the  other  in  a  moment. 

Mr.  Brandeis.  I  said  it  was  possible,  and  perhaps  I  might  state — 
showing  you  more  clearly  what  I  have  in  mind — the  difficulties  of 
such  a  commission.  We  are  to-day  especially  to  be  congratulated 
on  the  character  of  the  Interstate  Commerce  Commission  and  on 
their  accomplishments.  Of  course,  we  have  got  to  remember  that 
during  a  large  part  of  the  24  years  of  the  organization  of  the  com- 
mission there  was,  for  one  reason  or  another,  not  that  satisfaction, 
and  that  it  took  a  very  large  number  of  years  and  a  great  deal  of 
additional  perfecting  legislation  to  enable  the  commission  to  arrive 
at  the  point  where  they  could  and  did  satisfy  the  public  needs. 
Now,  the  great  difficulty  which  it  seems  to  me  to-day  the  commission 
still  labors  under  is  the  multitude  of  questions  and  the  onerous  char- 
acter of  the  duties  which  it  is  called  upon  to  perform.  They  have 
to  deal  with  236,000  or  240,000  miles  of  railroad,  and  the  questions 
which  necessarily  arise  in  connection  with  them  are  numerous.  We 
have  had  the  situation  with  regard  to  some  of  the  most  important 
cases,  for  instance,  like  the  Intermountain  case.  Now,  wholly  aside 
from  the  recent  interference  with  its  action  by  the  Commerce  Court, 
we  have  there  had  a  controversy  in  which  the  endeavor  to  adjust 


590  Industrial  Combinations  and  Trusts 

what  was  a  proper  rate  has  extended  over  a  large  part  of  a  genera- 
tion. 

We  have  had  all  these  difficulties,  although  the  Interstate  Com- 
merce Commission  deals  only  with  transportation,  and  railroad 
transportation  is  a  business  which  is  practically  uniform  in  its  prob- 
lems and  in  which  the  problems  are  largely  the  same  yesterday, 
to-day,  and  to-morrow.  Of  course,  circumstances  differ;  but  after 
all,  the  problems  of  railroad  rates,  the  problems  of  discrimination 
are  largely  the  same  problems  throughout  the  country.  When  we 
are  dealing  with  rates,  one  of  the  commonest  methods  of  decision 
arrived  at  by  the  commission  is  by  comparison — a  comparison  of 
the  service  and  of  the  charges  for  a  similar  service  on  the  same  or  on 
another  railroad. 

When  you  pass  from  the  realm  of  transportation  to  the  realm  of 
industry  the  problems,  instead  of  being  uniform,  are  widely  vary- 
ing, and  instead  of  being  practically  stable,  they  are  ever  changing. 

The  difficulty  that  I  see,  or  one  of  the  difficulties  which  I  see,  in 
appointing  at  this  time  a  commission  with  the  power  of  granting 
or  denying  permission  to  engage  in  interstate  business  rests  in  the 
fact  that  the  commission  would  be  burdened  with  the  decision  of 
questions  so  numerous  that  not  only  one  commission  but  many 
commissions  would  be  unable  to  compass  the  work. 

Take  the  work  of  the  Bureau  of  Corporations  on  these  few  prob- 
lems— the  Beef,  Tobacco,  Steel,  and  Oil  Trusts.  The  inquiry  neces- 
sary to  determine  facts  in  regard  to  the  existing  business  has  occu- 
pied six  or  seven  years. 

You  propose,  in  the  first  instance,  at  all  events,  to  deal  only 
with  the  future ;  but  an  investigation — a  very  extensive  investigation 
— would  have  to  be  made  before  any  commission  could  justly  say 
that  a  license  should  be  granted  or  denied.  An  investigation  of  that 
kind  ought  to  permit  the  participation  of  those  directly  interested, 
either  on  behalf  of  the  community  or  competitors,  like  at  hearings  be- 
fore the  Interstate  Commerce  Commission.  That  would  tend  to 
safety,  but  also  take  more  time  of  the  commission.  We  should  go  ex- 
ceedingly slow  in  the  development  of  any  plan  of  control  by  commis- 
sion. The  first  step  ought  to  be  investigation  only,  to  enlarge  very 
much  the  realm  and  the  scope  of  the  powers  of  investigation. 

At  present  I  should  feel  that  a  decision,  even  though  a  tentative 
decision  by  such  a  commission,  resulting  in  the  granting  or  denial  of 
a  license  might  lead  us  into  many  erroneous  paths. 


Methods  of  Dealing  with  the  Trust  Problem    591 

Senator  Cummins.  You  have  advocated  here  the  passage  of  a 
law  which  makes  40  per  cent  of  the  business,  I  think,  prima  facie 
evidence  of  a  violation  of  the  antitrust  statute? 

Mr.   Brandeis.  Presumptive;  yes;  in  case  of  a  combination. 

Senator  Cummins.  Now,  if  we  can  arrive,  with  the  information 
we  have  now,  generally  speaking,  at  the  conclusion  that  any  consoli- 
dation or  combination  that  proposes  to  take  in  40  per  cent  of  the 
business  is  against  public  policy  or  against  the  statute,  there  cer- 
tainly would  not  be  very  much  difficulty  in  the  commission  arriving 
at  a  similar  conclusion,  either  increasing  that  percentage  or  dimin- 
ishing it,  as  the  case  may  be.  We  have  enough  general  information 
to  carry  us  to  some  conclusions  upon  this  subject  of  industry. 

Mr.  Brandeis.  Well,  I  think  the  volume  of  the  accessible  infor- 
mation is  extremely  small.  For  instance,  in  connection  with  the 
investigation  which  I  was  obliged  to  make  in  the  Tobacco  Trust 
case,  I  endeavored  to  ascertain  with  some  exactitude  the  status  of 
the  independents.  I  had  the  assistance  of  some  of  the  ablest  and 
best  versed  of  all  of  the  independents  who  had  given  some  thought 
not  only  to  their  own  business  but  the  business  of  others. 

Yet  there  was  an  extraordinary  lack  of  knowledge  on  their  part. 
None  of  those  men  were  able  to  give  fully  the  kind  of  information 
in  respect  to  their  competition — other  than  the  trust — which  you 
and  I  would  wish  to  act  upon  in  any  important  affair  of  life.  I 
dare  say  if  I  had  had  open  for  me  the  avenues  of  the  Bureau  of 
Corporations — which  must  have  investigated  to  a  certain  extent 
also  the  independents  as  well  as  the  trusts — I  could  have  gotten 
more  information.  But  whatever  information  the  bureau  had 
was  the  result  of  a  very  wide  inquiry,  and  I  think  if  to-day  you 
would  undertake  in  any  branch  of  industry  to  ascertain  accurately 
the  trade  facts  you  would  find  that  the  inquiry  would  involve  a 
considerable  investigation  the  moment  you  reached  what  was 
termed  the  other  day  the  "twilight  zone." 

Mr.  Brandeis.  I  am  convinced  that  there  is  much  reason  in  the 
position  which  you  take,  and  I  heartily  sympathize  with  the  pur- 
pose of  it.  The  doubt  I  have  is  as  to  our  ability  to  develop  safely 
at  once  the  machinery  to  which  can  be  confided  the  serious  power 
of  licensing  the  corporations,  because  the  effect  of  such  licensing 
will  be  a  certificate  of  good  character  as  x  would  be  an  extremely 

potent  force. 

1  Thus  in  original. — Ed. 


592  Industrial  Combinations  and  Trusts 

My  doubt  goes  rather  as  to  what  can  be  done  at  the  present  time 
than  as  to  what  we  may  look  forward  to  a  little  later.  My  thought 
is — as  I  undertook  to  express  it  in  response  to  Senator  Ncwland's 
questions — that  the  first  step  in  the  organization  of  such  a  commis- 
sion would  be  to  give  it  large  and  much  broadened  power  of  investi- 
gation over  any  which  now  exist.  Give  it  full  rights  to  hear  com- 
plaints of  those  who  believe  themselves  to  be  wronged.  Throw  open 
the  results  of  its  inquiries  to  those  who  are  directly  interested  in- 
stead of  making  the  great  mass  of  information  which  is  obtained 
subject  only  to  disclosure  at  the  will  and  discretion  of  the  President. 
All  this  information,  like  a  great  mass  of  information  obtained  by 
the  Interstate  Commerce  Commission  and  by  other  bodies,  should 
be  public  information  to  be  acted  upon  by  the  public.  Gradually 
as  the  machinery  of  the  commission  is  perfected,  and  particularly 
as  the  volume  of  available  knowledge  in  regard  to  American  busi- 
ness accumulates,  we  might  more  safely  take  the  next  step  of  giving 
the  commission  important  powers  of  decision.  It  is  only  a  question 
of  the  time  when  such  powers  should  be  granted. 


Senator  Cummins.  You  have  spoken  of  some  of  the  disadvantages 
which  might  ensue  if  a  license — or  I  would  hardly  call  it  a  license — 
but  if  the  privilege  were  extended  to  a  given  corporation  to  do  busi- 
ness among  the  States,  it  occurs  to  me  there  are  some  advantages. 
The  corporation,  in  the  first  place,  should  be  honestly  capitalized 
before  it  was  given  this  privilege.  That  is  one  advantage,  no  matter 
whether  it  was  organized  under  the  laws  of  a  city  or  the  laws  of  the 
Nation.  The  second  advantage,  as  it  seems  to  me,  would  be  that  if 
it  came  to  the  knowledge  of  the  commission — and  it  would  have  op- 
portunities for  securing  knowledge  that  could  not  possibly  be  had  by 
the  Attorney  General  or  by  the  court,  for  the  courts  must  get  their 
knowledge  in  a  specified  way — that  the  corporation  wras  engaging  in 
practices  that  were  in  violation  of  the  law,  or  which  the  commission 
believed  to  be  in  violation  of  the  law,  the  commission  would  say  to 
the  corporation,  "Quit,  or  your  license  or  permission  is  revoked." 
Now,  if  the  permission  to  do  interstate  business  should  be  revoked, 
even  though  the  corporation  might  go  on  subject  to  the  power  of  the 
court,  yet  the  mere  fact  of  revocation,  it  seems  to  me,  would  counter- 
balance all  the  disadvantages  of  holding  the  permission ;  and  still  fur- 
ther, the  fact  that  the  permission  might  be  revoked,  and  thereby  the 
corporation  prima  facie  adjudged  to  be  engaged  in  unlawful  prac- 


Methods  of  Dealing  with  the  Trust  Problem    593 

tices,  would  secure  far  better  observance  of  the  law  than  we  now 
have. 

Mr.  Brandeis.  This  difficulty  exists,  does  it  not,  Senator?  Take 
this  very  position  which  you  have  suggested,  of  having  that  commis- 
sion pass  upon  the  question  of  the  revocation  of  a  license.  Now, 
that  is  a  question  most  serious  in  its  character — an  inquiry  which, 
in  the  case  of  almost  any  corporation,  but  particularly  of  a  large 
corporation,  would  involve  an  investigation  in  which,  of  course,  the 
corporation  must  have  the  amplest  opportunity  to  participate,  and 
an  issue  such  as  is  tried  out  in  the  courts — I  mean  of  the  same  char- 
acter that  is  tried  out  in  the  courts,  involving  a  very  long  period  of 
time.  The  revocation  of  that  license  may  practically  amount  to  a 
taking  away  of  half,  or  a  greater  part,  of  the  value  of  all  the  prop- 
erty of  that  corporation. 

Now,  such  a  power  would  have  to  be  exercised  most  carefully  and 
most  considerately,  and  surrounded  really  by  all  protection,  to  in- 
sure a  correct  and  just  decision  that  we  now  have  in  the  courts. 
Consequently,  the  investigation  would  be  a  matter  of  a  long  time. 
The  decision  of  them  might  necessarily  be  postponed  a  long  time, 
so  that  they  would  not  really  have  speedy  redress,  or  a  hasty  de- 
cision would  be  made  which  all  would  have  occasion  to  regret. 


'  I  1HE    following   pages    contain    advertisements 
of  books  on  kindred  subjects 


The  Control  of  Trusts 

(New  Edition) 

By  JOHN  BATES  CLARK  and  JOHN  MAURICE  CLARK. 

Cloth,  i2tno,  $1.00  net,  postpaid  $1.10 

"The  People  and  the  Problem,"  "Combination  Versus  Monopoly,"  "How 
not  to  Deal  With  Trusts,"  "Monopolies  and  the  Law,"  "Destructive  Com- 
petition," "Constructive  Competition,"  are  the  leading  chapters  of  this 
volume,  which  is  written  in  a  manner  fair  and  thorough  as  well  as  concise." 

— Chicago  Inter-Ocean. 

"It  offers  an  economic  basis  for  a  distinction  between  reasonable  and 
unreasonable  restraint  of  trade." — Buffalo  Express. 

"A  carafully  thought  out  treatise  on  an  important  subject." 

— Philadelphia  Inquirer. 

"The  work  presents  an  outlook  for  the  future  of  industry,  under  a  policy 
that  is  clearly  in  sight,  which  appears  more  encouraging  than  any  which 
has  been  recently  afforded  by  the  actual  state  of  the  business  world." 

— San  Francisco  Call. 


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Elementary  Principles  of  Economics 


By  IRVING  FISHER,  Professor  of  Political  Economy,  Yale  Uni- 
versity. Cloth,  i2tno,  531  pp.,  $2.00  net 

(Extracts  from  the  Preface) 

Of  the  many  possible  methods  of  writing  economic  textbooks,  there  are 
three  which  follow  well-defined,  though  widely  different,  orders  of  topics. 
These  are  the  "historical,"  the  "logical,"  and  the  "pedagogical."  .  .  . 

The  pedagogical  begins  with  the  student's  existing  experience,  theories, 
and  prejudices  as  to  economic  topics,  and  proceeds  to  mold  them  into  a 
correct  and  self-consistent  whole.  The  order  of  the  first  method,  there- 
fore, is  from  ancient  to  modern;  that  of  the  second,  from  simple  to  complex; 
and  that  of  the  third,  from  familiar  to  unfamiliar.  The  third  order  is  the 
one  here  adopted.  That  the  proper  method  of  studying  geography  is  to 
begin  with  the  locality  where  the  pupil  lives  is  now  well  recognized.  With- 
out such  a  beginning  the  effect  on  the  student's  mind  may  be  like  that  be- 
trayed by  the  schoolgirl,  who,  after  a  year's  study  in  geography,  was  sur- 
prised to  learn  that  her  own  playground  was  a  part  of  the  surface  of  the 
earth.  .  .  . 

This  book,  therefore,  aims  to  take  due  account  of  those  ideas  with  which 
the  student's  mind  is  already  furnished,  and  to  build  on  and  transform 
these  ideas  in  a  manner  adapted  to  the  mind  containing  them.  This  is 
especially  needful  where  the  ideas  are  apt  to  be  fallacious.  The  economic 
ideas  most  familiar  to  those  first  approaching  the  study  of  economics  con- 
cern money, — personal  pocket  money  and  bank  accounts,  household  ex- 
penses and  income,  the  fortunes  of  the  rich.  Moreover,  these  ideas  are 
largely  fallacious.  Therefore,  the  subject  of  money  is  introduced  early  in 
the  book  and  recurred  to  continually  as  each  new  branch  of  the  study  is 
unfolded.  For  the  same  reason  considerable  attention  is  given  to  cash 
accounting,  and  to  those  fundamental,  but  neglected  principles  of  economics 
which  underlie  accounting  in  general.  Every  student  at  first  is  a  natural 
"mercantilist,"  and  every  teacher  has  to  cope  eventually  with  the  preju- 
dices and  misconceptions  which  result  from  this  fact.  Yet  no  textbook  has 
apparently  attempted  to  meet  these  difficulties  at  the  point  where  they  are 
first  encountered,  which  is  at  the  beginning.  .  .  . 


PUBLISHED  BY 

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Principles  of  Economics 


By  F.  W.  TAUSSIG,  Henry  Lee  Professor  of  Economics  in  Harvard 
University. 

Cloth,  Svo,  2  volumes,  $4.00  net  per  set 

This  book,  which  is  addressed  neither  to  specialists  nor  to  children,  but 
to  students  and  the  educated  public,  states  simply  but  fully  the  main 
principles  of  economics  and  their  application.  It  does  not  avoid  difficult 
or  severe  reasoning,  but  centers  attention  on  the  larger  problems  and  the 
important  trains  of  reasoning  and  treats  these  liberally  and  fully.  The 
book  deals  with  the  present  day;  there  is  very  little  of  economic  history, 
very  little  about  the  phenomena  of  semi-civilization  or  barbarian  society. 
The  experiences  and  problems  of  countries  of  advanced  civilization  are 
primarily  kept  in  view.  American  problems  naturally  receive  considerable 
attention,  but  the  author  is  chiefly  concerned  with  those  principles  which 
are  of  general  application  in  all  of  the  leading  countries  of  modern  times. 

"The  book  is  a  notable  addition  to  the  literature  of  political  economy. 
The  ease  born  of  thorough  familiarity  with  every  part  of  the  subject,  and 
of  long  practice  in  successful  teaching  of  mature  students,  is  apparent  in 
style  throughout." — New  York  Evening  Post. 


Monopolies  and  Trusts 

By  RICHARD  T.  ELY. 


Cloth,  i2mo,  $1.25  net,  postpaid  $1.37 


In  this  work  the  man  who  wants  to  know  may  find  in  condensed  form,  the 
causes  of  trusts,  the  laws  establishing  their  prices,  their  limits,  and  their 
efforts  to  control  production.  The  evils  of  monopoly  are  plainly  stated 
and  remedies  are  proposed.  This  book  should  be  a  help  to  every  man  in 
active  business  life. 


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Concentration    and    Control      A  Solution  of  the  Trust  Problem 

in  the  United  States 

By  C.  R.  VAN  HISE. 

Cloth,  i2?no,  $2.00  net,  postpaid  $2.14 
A  book  which  aims  to  present  an  outline  picture  of  the  situation  regarding 
concentration  of  industry  in  the  United  States  and  to  suggest  a  way  to 
gain  its  economic  advantages  and  at  the  same  time  to  guard  the  interests 
of  the  public  is  President  Charles  R.  Van  Hise's  Concentration  and  Control, 
which  has  been  written,  the  author  says,  "because  this  is  the  most  pr<  ing 
problem  now  before  the  people  and  before  Congress  and  State  Legislatures." 
"A  Solution  of  the  Trust  Problem  in  the  United  States"  is  the  author's 
sub-title,  which  indicates  exactly  the  character  of  the  volume  which  Presi- 
dent Van  Hise  hopes  will  have  the  good  fate  "to  assist  in  the  rule  of  en- 
lightenment, reason,  fair  play,  mutual  consideration  and  toleration,  and 
thus  advance  the  solution." 

Aside  from  the  standard  works,  President  Van  Hise  has  drawn  for  his 
material  from  the  special  reports  on  manufactures  made  by  the  census 
office,  the  reports  of  the  Commissioner  of  Corporations  upon  Standard 
Oil,  Tobacco,  Steel,  Beef  and  Water  Powers,  and  the  Hearings  and  Reports 
before  the  Committees  of  the  Sixty-second  Congress.  It  has  been  his  aim 
first  to  put  before  the  reader  that  information  which  is  essential  to  reach 
a  sound  conclusion  regarding  the  handling  of  the  great  problem  of  concen- 
tration of  industry,  both  in  the  way  of  legislation  and  administration. 
Following  this  statement  of  facts,  the  author  presents  his  own  conclusions 
on  these  matters. 

The  book  is  divided  into  five  main  chapters:  The  General  Facts  Regarding 
Concentration,  Some  Important  Illustrations  of  Concentration,  The  Laws 
Regarding  Co-operation,  The  Situation  in  Other  Countries  and  Remedies. 
Under  these  are  taken  up  such  questions  as  Economic  Advantages  of  Con- 
centration, Its  Causes,  Its  Purposes;  The  Kinds  of  Competition,  The 
Wastes  of  Competition,  The  Standard  Oil  Company,  United  States  Steel 
Corporation,  The  American  Sugar  Refining  Company,  The  Laws  Regard- 
ing Co-operation  in  England,  Germany,  Austria,  France,  Pure  Food  and 
Drug  Laws,  Patent  Monopoly.  The  Creation  of  Trade  Commissions  and 
Commission  Control  of  Public  Utilities. 

"Dr.  Van  Hise  has  written  an  interesting  book." — New  York  Sun. 

"The  book  deserves  a  careful  reading." — Boston  Herald. 

"A  book  students  of  the  trust  problem  cannot  afford  to  overlook." 

— Boston  Advertiser. 


PUBLISHED  BY 

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Publishers        64-66  Fifth  Avenue        New  York 


LAW  LFSKA1, 
UNIVI  CALIFORNIA 

ES 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


AA    000  859  597    7 


